Balance Like a Business- Creating Personal Financial Statements

Do you feel like you are barely making ends meet and can't understand why? Creating personal financial statements can help you to change that.

Begin by digging into your finances, and if you run into a sense of panic and shame, persevere. It's until you uncover the truth about your personal financial situation that you can change it.

It may be hard to face the reality of your debt or overspending but don't shy away from it. Use the knowledge to set achievable goals and create a plan for your future.

With determination and hard work, you can slowly climb out of debt and gain control of your finances. You can feel empowered and finally able to achieve your dreams, feeling secure and free.

So what personal financial statements do you create?

Income Statement

To create your income statement, itemize your income and expenses. You begin by listing all your sources of income in detail. Total them. You will arrive at your net income. This number is the money you earned for the period before paying any expenses.

Then list your most common expenses. Separate your fixed expenses from variable expenses.

Fixed expenses usually include items such as rent, cable, and Internet. You consider them fixed because they don't usually change from month to month.

Variable expenses fluctuate and depend on how much of something you use. These include things like groceries, utilities, and gas.

Separating your expenses will allow you to identify areas of your spending that you can take more control over. Fixed expenses require more radical changes than variable expenses. For example, if you think you are spending too much on rent, you can change this by moving to a new home.

But if your electricity bill is too high, you can make more effort to turn off lights when you leave the house, unplug appliances when you aren't using them, and do other things to lower your expenses.

If you have loan payments to make, it's a good idea to include them as an expense here since your income statement is trying to identify money you have in surplus or deficit at the end of each month.

So when you have all income and expenses for the month, find the difference. Insert the total into the Balance Sheet in the next section.

Remember that an income statement only shows your income and expenses for one month. It doesn't include any carried-over balance. It resets to zero at the beginning of every new month.

Balance Sheet

Draw a line down the middle of a page. On one side of the line, list everything that you own. These are called assets and include your house, car, savings, and other things you own. Assign a value to each but remember to be conservative with the value you assign.

Then on the other side of the line, list everything you owe. Long-term and short-term loans, credit cards, and personal loans to friends and relatives go here.

After you tally each side, you will know your net worth.

If you have a surplus for the month from your income statement, add it after the total to the asset side.

If you spend more than you earn and end up with a deficit, add it to the side of things that you owe.

Doing this can help you to evaluate if your actions are helping to improve your financial situation.

Budget

Unlike the income statement and balance sheet, you use a budget to plan instead of to find out your actual numbers for a period.

You prepare your budget similarly to the income statement. The difference is that you will insert projected numbers instead of actual numbers.

You can use the numbers from your income statement to identify where you would like to increase income or reduce expenses.

Then, at the end of the period, you can compare the budget and income statement side by side.

If your numbers differ significantly, it shows that you may need to be more conscious of your everyday financial decisions. It will help you to stick to your budget.

Since budgets are forward-looking, they are essential to help you achieve your financial goals.

The challenge

Take some time this week to try and prepare your financial statements. Learn your net worth. Plan your income and expenses. And evaluate your spending for the month.

If you are finding it challenging to sit down and evaluate your financial position alone, you may want to consider hiring an expert to help you. Angelia has been working to help others like you. She assists in making a plan and helps you every step of the way to acheive it.

Book your consultation with her Here.