With a personal income statement, you can see where you stand financially.
A personal income statement shows how much money you make and how much you spend. It can help you improve the way you handle your money.
Learn how to make a personal income statement so you can keep track of your cash flow and decide how to change your budget and financial plans.
In business, an income statement shows how much money a company made and how much it spent over a certain time period. By adding up these numbers, businesses can figure out their net income and figure out how profitable they are.
What if you could use these same ideas to manage your own money? We’ll show you how to do it.
We’ll teach you everything you need to know about personal income statements in this article. In particular, we’ll talk about:
- How they work
- How you can use them to get a better picture of your finances
- How can you put them together?
By the end of this article, you should know more about how to use income statements as part of a plan for managing your money.
What is a statement of my own income?
A personal income statement shows how much money came into an account and how much went out. If you bring in more money than you spend, you will have a net profit. If you spend more money than you bring in, you will have a net loss.
The personal income statement shows how much money you get and how much you spend over time. You can set up your personal income statement however you want. Monthly and quarterly are two of the most common ways to do it.
For example, if you use a monthly statement, you’ll keep track of how much you earn and how much you spend each month. In the sections that follow, we’ll talk in more depth about how to make a personal income statement.
Statements of personal income help you keep track of what you spend. The goal should be to make money. If your cash flow is negative, figure out why.
If you can’t cut any costs, do you need to find a different way to make money? Depending on what your personal income statement says, you might decide to make a budget or get a side job.
How can a statement of income help you figure out where you stand financially?
Income statements are a tool that can help you figure out what’s going on with your money. If you have a net profit, you have money to do things like:
- Pay down your credit card debt, student loan debt, personal loan debt, car loan debt, and mortgage loan debt.
- Save money in a savings account for emergencies.
- Put money into your 401(k) and IRA.
- Buy a rental property to use as a way to make money from real estate.
If you have a net loss, on the other hand, you might have to use your savings or borrow money to pay your bills. This may happen sometimes when it’s raining, and emergency funds are there for a reason, but it’s a problem if it happens often. If you have a net loss for a few periods in a row, you may end up with debt that is hard to pay off because of interest.
So, income statements are helpful because they give you a quick look at your personal finances and cash flow over time. They can help you find trends and patterns that lead to bigger problems in the long run.
It’s important to remember that your income statement
And, in particular, whether you have a net profit or net loss, are not the same as your net worth. Your net worth is the value of all of your assets minus all of your debts. Your net worth is found by looking at your balance sheet. Putting together your income statement and balance sheet is a good way to figure out how healthy your finances are.
In general, your income statement and balance sheet will show one of these four things:
- Positive net income (cash flow) and net worth
- Cash flow is good, but your net worth is bad.
- cash flow in the red, net worth in the black
- negative net worth and negative cash flow
You should try to have a cash flow that is positive and a net worth that is positive. On the other hand, the worst things that can happen are a negative cash flow and a negative net worth.
If your net worth is negative, having a positive cash flow can help you get back on track. You can pay off debt and work toward having a positive net worth by using extra money.
Say your salary and side work net $300 per month.
You have a new car loan, credit card debt, and little savings.
$5,000 in debt.
Monthly $300 might reduce credit card debt or accelerate car payments.
This increases your wealth.
The more likely you are to be financially stable, the higher your net worth. When you work toward your financial goals, having a positive net worth gives you more freedom. You need a positive cash flow if you want to build and keep a positive net worth. The statement of personal income can be helpful.
Lastly, when you look at your income statement and balance sheet together, you can get a better idea of how your finances are doing as a whole.
How do you make a statement of your own income?
To make a personal income statement, you need to choose the time period you want to look at. If you need to keep track of your spending or are trying to reach a certain goal, you might want to make a monthly statement. If your cash flow and net worth have been good in the past, you may only need to look at your statement every three months or once a year. Let’s say you choose a monthly personal income statement so we can talk about it.
Next, choose the tools you’ll use to write down the information. Some people like to write things down, while others like to use a spreadsheet. You might even be able to find a “template” for an income statement online. If you go this route, try to find one for personal finances instead of one for small business owners, since the categories listed may not apply to you.
In the end, it comes down to what each person wants. The more you understand your income statement, the more likely it is that you will use it.
Once you know this, make a list of your income sources and how much money you have coming in. This will probably include your salary or hourly wages as well as any other money you get from a side job, Social Security, alimony, or child support.
It could also include money you get from passive investments, like dividends, if you plan to use that money as part of your monthly income. Don’t count it as income if you’re going to put it back into business. Instead, it will show up on your balance sheet as an asset.
Once you know how much you make each month
write down how much it costs you to live and run your home. These are costs that you can probably count on, such as:
- Rent or mortgage payments
- Car payments
- Loan payments
- Minimum payments must be made on credit cards.
- Gas or other costs of travel
- Cable and the Internet
- Groceries
- Daycare
- Child support and spousal support
- Paying for health insurance
- Life insurance payments
- Subscriptions
Let’s say it’s April 1 and you’re making your income statement. Look at your March bank and credit card statements to see how much you spent on each of these things.
This is one of the things that could go wrong with a personal income statement. Income statements are retrospective, which means that they only show information from the past. You can use this information to make a budget and plan for future problems. If your expenses are pretty consistent, you should be able to predict how much cash you will have in the future.
Let’s look at the following cash flow as an example:
Income sources include:
- Net income from a full-time job every month: $3,000.
- $500 per month from a side job
Expenses include:
- Payment for rent each month: $1,000
- Car payment: $250 per month
- Payment on a loan: $250 per month
- $50 is the minimum monthly payment on a credit card.
- $300 a month for transportation costs.
- $50 per month for internet and cable.
- $550 a month for groceries.
- $50 per month for subscriptions.
In this case, the income each month is $3,500. The cost each month is $2,500. The net income each month is $1,000.
A personal income statement can help you figure out how to handle your money.
If you want to learn more about your finances, you might want to use a personal income statement. It lets you keep track of your spending and income over time. This helps you keep track of and improve your personal finances, and it can also help you plan for your future finances.
Your personal income statement may show that you made less money than you spent. Even though it’s normal for this to happen once in a while, it shouldn’t be a regular thing.
If you use credit cards to borrow a lot of money, you may want to use tools to help you pay down your debt.
