- Develop and Implement a Budget
- Calculate Your Net Worth Using a Personal Balance Sheet
- Develop a Personal Income Statement and Use It to Analyze Your Spending
- Cash Management
- Consumer and Mortgage Loans
- Debt and Debt Reduction
- Time Value of Money 1: Present and Future Value
- Time Value of Money 2: Inflation, Real Returns, Annuities, and Amortized Loans
- Insurance 1: Basics
- Insurance 2: Life Insurance
- Insurance 3: Health, Long-term Care, and Disability Insurance
- Insurance 4: Auto, Homeowners, and Liability Insurance
- The Home Decision
- The Auto Decision
- Family 1: Money and Marriage
- Family 2: Teaching Children Financial Responsibility
- Family 3: Financing Children’s Education and Missions
- Investments A: Key Lessons of Investing
- Investments B: Key Lessons of Investing
Develop a Personal Income Statement and Use It to Analyze Your Spending
A personal income statement is like a financial motion picture of your cash inflows and outflows. This type of statement is based entirely on actual cash flows, not accruals. An example of an income statement is found in Chart 6: Income Statement Example. If the statement looks familiar, it is because the income statement is just the middle column of your budget.
Chart 6. Income Statement Example
Income: Cash Inflows
Income includes things such as wages, tips, royalties, salaries, and commissions. Income is the amount you earn, which is not necessarily equal to the amount you receive. This is because some expenses, such as taxes, health-care costs, 401(k) contributions, and so on, are deducted from your check before you receive it.
Expenditures: Cash Outflows
As discussed in the previous section, there are two main types of expenses: fixed and variable. Fixed expenses are expenses that you don't directly control and that you usually pay monthly or semiannually, such as a mortgage payment, rent, tuition, and books.
On the other hand, variable expenses are expenses that you have control over, such as food, fuel, entertainment, clothing, utilities bills (to a degree), and cable TV.
There may be differences of opinion concerning what constitutes a fixed versus a variable expense. For example, while one spouse might consider dates each weekend a fixed expense, another might consider it a variable expense. Be careful that variable expenses are not considered fixed expenses. Realize also that most fixed expenses are variable over longer periods of time; for example, you can buy a smaller house or get by with a used, instead of new, car.
Using Ratios to Analyze Your Spending
Once you have completed your personal balance sheet and your personal income statement, determine how your financial statements can answer the following questions: