Making Your Own Income Statement
I have one of the worst habits when it comes to monitoring my finances; I don’t open my mail often. I pick it up on a regular basis and throw it on my coffee table while something more important comes up, and then eventually I’ll get to it later down the road. I seriously advise against this, it’s one of the worst habits you can have. Any last minute notices often go unseen, any important letters from the bank are often missed. If you accidently missed a payment, you would be completely unaware of it until you open your mail. And the longer it is until you open it, the worse it will be. This can cause many issues for you such as ruining your credit score, getting calls from collection agencies etc. I cannot stress enough how important it is to open your mail in a timely manner.
If you already do open your mail regularly, you’ll notice that a good chunk of the mail you receive tends to be bank statements. Taking a close look at your banking statement is vitally important when it comes to monitoring and getting ahead on your finances. After all, how can you improve if you don’t know where you are? Looking at your bank statement is important whether you are monitoring your money for your own personal finance or for a business. You don’t need any prior knowledge in accounting or finances to create your own annual income statement.
In order to create your own annual income statement, you need to know your current income, expenses, and net income. It’s best to have this information for the last 12 months but just use what you have for now; you should be building onto it on a monthly basis. By reviewing your income statement, you can see opportunities for financial growth and future successes.
How to Make Your Own Annual Income Statement
Income
When taking a look at your income statement, one of the first things you should take into account is your income. You should see any monies coming into your account throughout the month and keep track of how much you have coming in every month. Now write down on a separate sheet of paper the total income from the previous month. Be sure to include any and all income you may receive during that month including from any jobs, businesses, monthly payouts from stock holdings etc.
If you are making an annual income statement for a business, make sure to include any payouts that business receives during the course of a month. Other incomes for your business may include any sales, contracts closed, interest income, billing adjustments etc. The more specific the better so try to get accurate numbers. Feel free to use an excel spreadsheet to keep yourself organized.
Expenses
The next thing you need to look into is the expenses. Many of your basic expenses may already be listed on your bank statement such as grocery expenses, new clothes or gas for your car. You may have to look for other expenses elsewhere, but make sure to list everything you spend money on in the course of that given month. This includes your rent or mortgage, utilities, car payments, condo fees, insurance, gas, food expenses (grocery, fast food and dining out), debt payments, any monthly education costs, cell phone bill, any costs for pets, medical expenses etc.
Anything you spend money on during the course of the month should be recorded in your annual income statement. If it’s difficult to record everything, try to carry around a little expense notebook with you to record any transactions you make. Make sure to include anything that automatically comes out of your account as well. After you list everything, add it all up so you have a clear idea of exactly what all your expenses are for the month.
If you’re making an income statement for your company, you can generally find all the expenses in the expense report generated each month. Other expenses may include office and/or administrative expenses, salaries, rent, taxes etc.
Net Income
Now that you have you total income report and your total expense report, it’s time to put two and two together. Subtract your total expenses from your total income and that is your net income. Ideally, you want your net income to not only be positive, but also have enough money left over for savings, further investments, charity and any other miscellaneous expenses. If your net income is in the negatives, you need to either cut back on some of your expenses, or create more income or else you’ll end up depleting your savings and/or racking up some debt pretty quickly.
Now that you have everything set up in front of you for the last month, you want to keep doing this on a monthly basis until you reach an entire year in order to get an annual income statement. An entire year is important because you can see your progress (or lack of progress) each month with clear numbers of exactly how much you have. You can’t expect to increase your numbers without knowing exactly where you are to begin with. If you are making this income statement for a business, it will be much easier to see exactly how much you are profiting or see where you are spending too much money which is essentially keeping you from profiting.
The more net income you have at the end of the month, the more you can set aside for the future, for added expenses, further projects etc so it’s important to try to end up with as much as possible to expand your financial future or build your business even more. As you can see, creating your own annual income statement is very simple, but a very effective tool for success.
You can always hire an accountant or bookkeeper to do this for you, but their services can be quite expensive and you end up missing the opportunity to learn how your finances really work. There are many online sources that can help you keep track of your current finances and measure exactly how much you are improving and as you become more experienced in creating your own annual income statements, you can always add in more categories to keep track of so you can see exactly what aspect of your finances require further improvement.
As you go one in the future, you should create one of these every year so you can look back on the first year you’ve started and you can see how far you’ve come along.
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