Day 18 | $24,666 paid | $66,051 till freedom
It’s 2:32 AM and I’m creating financial statements. Is this what life as an investment banker is like? That must suck.
Anyway, I realized I was trying to take shortcuts with my “debt-paydown roadmap,” and probably completely confused everyone, myself included, in terms of what I should be earning and spending to meet my goal, so I’m replacing it with a pro-forma income statement for months one through ten of my mission. It clearly spells out how much I plan on making and spending, and the overall delta to my goal. Right now, it shows that I’m actually only $5,586 away from my goal–so not as bad as the $10k that my inaccurate and cumbersome (and quite frankly, very horrible) debt-paydown roadmap indicated. As I fill it out each month, I’ll be able to review line-item variances to help me pinpoint exactly where I’m hitting my budget or exceeding it.
Besides intangibles like willpower and ambition, this might be the single most powerful weapon in the arsenal for those who are on debt-paydown missions of their own. It will guide financial decisions and keep everything in perspective.
How to Read the Income Statement
Note that you’ll have to click on the spreadsheet if you actually want to be able to read it. Once you open the image, you might need to zoom in depending on your browser settings.
The income statement basically shows my starting cash and starting debt in September, followed by expected monthly income and expenses. The final section shows my overall spend for the month, cash before debt, required cash cushion (I chose $3.5k), potential cash for debt, actual cash paid to debt, and the next line assumes only 70% of my regular monthly debt payments goes to the debt principal. Debt less actual cash paid to debt less 70% of regular monthly debt payments results in ending debt for the month, and the $3.5k cash cushion is my ending cash for the month.
On the front-end of the spreadsheet, I show what my former budget was for expenses (“Old Bdgt”), and what my new budget is (“New Bdgt”). It’s eye-opening.
A box around a cell denotes a cumulative expense. For example, “entertainment” will be several expenses added together, as opposed to the internet bill, which is a single payment.
Note that during certain months I receive three paychecks instead of two.
Finally, I put the annual expenses in the last month even though they’ll be spent throughout the year.
Exp = Expected income or expenses to pay
Actual = Actual income or expenses paid
Var = Variance to goal
% = % variance to goal
Note that I’m still not providing my exact salary, as the number I provided is after tax and other random built-in expenses such as health insurance.
My hope is that this clean pro-forma income statement will make it easier for you to follow my progress. At the end of each month, I’ll post a status update which will include the updated income statement as well as a review of highlights, lowlights, and the outlook to my goal.