Many of you may think writing a financial statement is hard and needs professional skills. Well! I highly recommend inviting a financial planner and letting them write financial information and plan for you. There are four good things about visiting a financial planner:
1. They know many things you may not have thought or heard about. They have experience in financial Items and terms.
2. They have no emotional feelings attached to your financial situation so that they can devise a plan just for you without any emotional problems.
3. They solve the problem of learning, knowing, and lots of financial and accounting terms and vocabulary you might rarely use. So you can focus on other issues like making more money.
4. Having a financial planner and accountant is crucial to being rich. Rich always has expert and knowledgeable accountants and financial advisors helping them. If you want to get rich and stay rich, you should have a good team; a financial planner is an important part of the team.
But do not get frustrated or scared! If you don’t have any assets or income from your investments 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 start 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 the Income Statement. This is the earning part of the statement and shows how much you are over a certain period. It contains three parts, and each piece 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 to understand what a payment 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 payment), 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 a dividend.
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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 different and can be discussed in detail, but let me tell you a little about their differences, what rich people mostly use, and why they prefer it over the other types.
If your only income source is your earned income, you pay the highest tax rate possible. People who only have made 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, the government receives 50 cents.
Note: Any bonus or extra money you receive must be considered an income. If you profit in a deal or sell your car, that money should be listed in the earned income column.
You get your income as portfolio income if you have investments in stocks, bonds, or mutual funds. This is 20-80% income because you pay about 20% tax. This type of income fluctuates depending on the conditions of the market.
If you buy some properties and earn your income from the rent you receive or have a business run by somebody else, you get passive income. This is the income that rich people make most of their income from because of the tax advantages, and it doesn’t need 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 the rich prefer passive income over the other two types. They can earn a lot without physically working and paying taxes.
Which of these is your current income type, and which do you want to earn more in the future? This is an important part of the financial plan 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 income you want in the next 5, 10, or 15 years, and then plan for it.
Do We Need An Income Statement?
Though many think that having an income statement is only for businesses and companies, in the rich people world, every person who wants to control his wealth must have a periodic income statement. Any financial information gives you a general and detailed look at your financial situation. With the help of other financial experts, you can find the weak points and strengths, then fix the weaknesses and improve the power points. This way, you can fast-forward your move to reach your goal very soon.
