A cash-flow statement categorizes the money that entered and left the household in a period. The categories are not a chart of accounts; they are decisions about what you want to see. A useful category is one that could plausibly change next year based on a decision you might make.
- 01Design a category structure the Scholar will actually maintain.
- 02Distinguish fixed from variable and discretionary from non-discretionary.
- 03Reconcile the categorized statement to the bank statement.
Income
Wages after tax and after retirement contributions is the working number. Include a separate line for one-off income — bonuses, tax refunds, gifts — because treating those as recurring is the most common household planning error.
Expenses
Four categories are enough for most households: housing, food, transportation, and everything else. Discretionary versus non-discretionary is a second dimension. If you cannot maintain the categories, they are too fine; make them coarser.
Reconciliation
At the end of every month, the categorized statement should sum to the change in your bank account plus what you moved to savings and investment. If the numbers do not reconcile, you have unclassified transactions, and unclassified transactions are where the leakage lives.
- A category structure is a decision-making tool, not an accounting one.
- Reconcile monthly. Unreconciled expenses are unmanaged expenses.