What Is On An Income Statement And A Step By Step Process Of How To Make An Income Statement

Many of you may think that writing a financial statement is very hard and needs professional skills. Well! I highly recommend to visit a financial planner and let him/her to write a financial statement and financial plan for you. There are four good things in visiting a financial planner:

1. They know lots of things that you may have not thought or heard about they have experience in financial Items and terms.

2. They have no emotional feelings attached to your financial situation, so they can devise a plan just for you without any emotional problem involved.

3. They solve the problem of learning, knowing and lots of financial and accounting terms and lingo that you might rarely use. So you can focus on other issues like making more money.

4. Having a financial planner and accountant is a crucial part of being rich. Rich always have expert and knowledgeable accountants and financial advisors helping them. So, if you want to get rich and stay rich, you shall have a good team and financial planner is an important part of the team.

But do not get frustrated or scared! If you don’t have any assets or any income from your assets and still have a 9-5 job, having a financial planner may only cost you about $100-200. But if you think you don’t need a financial planner or you think you can write one for yourself, that’s OK. I want to help you here starting to write a financial statement.

Which Type Of Income Do You Like To Have?

One of the most important parts of any financial statement is Income Statement. This is the earning part of the statement and shows you how much you exactly earn over a certain period of time. It contains three parts and each part might have some more sections.

There are different types of income available in the financial world. I list them here and explain each a little so you get an idea of what an income can be.

Earned Income: This is the most known type of income. It’s the income you get from a 9-5 job. At the end of each month ( or week or fortnight, depending on how you receive your income) you get a check for a month of work you have done.

Portfolio Income: This is the income you get from investments in stocks, bonds or mutual funds. It is also called dividend.

Passive Income: This is the income you receive from a real estate investment or a business that doesn’t need your presence to generate money.

These incomes are totally different and can be discussed in detail, but let me tell you a little about the differences between these types and which one is mostly used by rich people and why they prefer it over the other types.

If your only source of income is your earned income, you pay the highest rate of tax possible. People who only have earned income pay about 40-50% tax though they think they pay only 20%. That’s why sometimes it’s called 50-50 income because for any dollar you earn, government receives 50 cents.

Note: any type of bonus or extra money you receive must be considered and treated as an income. If you make a profit in a deal or sell your car, that money should be listed in the earned income column.

If you have investments in stocks, bonds or mutual funds, you get your income as portfolio income. This is called 20-80% income because you pay about 20% tax for it. This type of income is very fluctuate depending on the conditions of the market.

If you buy some properties and earn your income from the rent you receive or you have a business that is run by somebody else, you get passive income. This is the income that rich people earn most of their income from because of the tax advantages it has and it doesn’t need them to be there. It is called Passive Cashflow and it’s the type of income that I talk about in PassiveCashflowAcademy.com.

Now you know why rich prefer passive income over the other two types. They can earn huge amount of money without physically working paying tax.

Which one of these is your current income type and which one do you want to earn more in the future? This is an important part of the financial plan that you must decide on before starting your journey to become rich. If you know the exit, you can look back and build a strategy that gets you there faster and easier. So take some time and think about the type of the income you like to have in next 5 or 10 or 15 years from now and then plan for it.

Do We Really Need An Income Statement?

Though many think that having an income statement is only for businesses and companies, but in rich people world, every person who wants to have control over his wealth must have a periodic income statement. Any type of financial statement gives you a general and also detailed look at your financial situation and with the help of other financial experts you can find the weak points as well as strengths and then you can fix the weaknesses and improve the power points. This way you can fast forward your move to reach your goal very soon.

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