Previous Part –How to save, make and protect your money – Part 2
As discussed in Part 1, Part 2 we have given a clear picture of saving and managing your money. However, this section will explain more regarding the burning questions you have. First, we presented the value of creating a personal income statement to save and manage your money. So when it comes to building personal income statements, many questions arise from making your income statement to how reliable it is. Well, it is pretty simple, and once you try managing and calculating your money ins and outs a couple of times, it will be easy. It will also be a good habit that you will develop to save and manage your money.
What is a personal income statement or personal financial statement?
A personal financial statement is a report that outlines an individual’s monetary state of affairs. Assessing a person’s economic state of affairs is performed via way of means of compiling and gathering a listing of the individual’s belongings (e.g., cash, financial institution accounts, actual estate, motors, and investments) and a listing of the individual’s liabilities (e.g., credit score card debt, mortgages and different loans). Subtracting the individual’s general liabilities from their available belongings will offer that individual’s net worth.
Why do I need a personal income statement?
There are many motives why you could need a personal financial statement. You can also additionally require personal financial information in any of the following circumstances.
- To acquire a loan.
- To make a guarantee.
- For diverse funding transactions.
- To satisfy a co-op board’s financial requirements.
- Expand an estate, retirement, or different economic plan.
- To expand strategies for minimizing profits taxes.
- To pick out belongings under a divorce or separation proceeding.
- For the functions of running for public office.
What does a personal income statement consist of?
What does net worth mean?
Net worth is the difference between all the worth a person possesses and all the debts that person owes. In short, net worth is the value of all assets minus the value of all liabilities. When the person has more assets than debts, then that person has a positive net worth. Conversely, if an individual has more liabilities than assets, that person has a negative net worth.
What are equities?
Equity is the amount of capital that is invested or held by the owner of a business. Wealth is measured by the difference between liabilities and assets recorded in a company’s financial statements. The capital value is based on the stock’s current price or a value moderated by valuation experts, professionals, or investors. This specific account is also known as owners or shareholders or equity.
What are revenues?
The average selling price multiplied by the number of units sold yields Revenue, which is computed as the average selling price multiplied by the number of units sold. This is the higher number (or gross income) from which costs are subtracted to determine net income. Income is also called income statement sales. Revenue is the entire amount of earnings generated by using the sale of products or services associated with the company’s number one operations. Although Revenue is different from income, don’t be mistaken thinking Revenue is income. Income is the total profit made by a company or an individual. The concept of Revenue should be adequately understood for you to save and manage your money.
What are assets?
An asset has a financial value to a person to own it or use it to generate revenues in the future. These assets can be anything from cash, a car, a house, and even a business. The more assets that are in your possession, the higher your net worth becomes. An asset is thought of as one thing that, within the future, will generate money flow, cut back expenses, or improve sales, despite whether or not it’s producing equipment or a patent.
What are liabilities?
Liabilities check with financial obligations, debts, or claims owed using a person or organization to every other party. Penalties might also additionally consist of any of the following: Mortgages, bank loans, car lease, credit card payment, income taxes, real estate taxes, miscellaneous money owed to a friend/colleague, etc.
What are contingent liabilities?
A contingent liability is a liability that might happen due to an outcome of an unknown or uncertain future event. Contingent liability is recorded if the contingency is likely to happen, and the number of penalties can be measured reasonably. This applies to both personal and business income statements.
What is secured debt?
Secured debt is a debt you owe to someone or an organization secured by a collateral to reduce the risks to the organization if you end up not paying them. For example, suppose you stop paying the organization/ bank. In that case, the bank has the total authority to use your collateral to sell and recover the loss. Few examples for secured debt include using your car as collateral for car loans, using a house as collateral for big loans, etc. Assets used for collateral are more like security for the bank. This is the reason why unsecured debts are riskier for the bank than secured debt. Debt should be managed appropriately for you to save and manage your money.
How do you create a personal income statement?
It is pretty simple. What you have to do is find a template for a personal income statement calculator. This can usually be found on the internet, which is prepared and is easily accessible. You can download this. It is usually an excel worksheet. You will have to add the numbers and values in the respective boxes which are named. After that, it will automatically and instantly create your income statement.
What is the ideal age or time to make a personal income statement?
There is no specific ideal age or time to start. However, please start as soon as possible. Even if you are a high school student who works part-time, making it a habit to calculate your income statement. This will come in handy the earlier you start. It will be a valuable tool to save and manage money.
I just got out of school; How do I learn to manage the money I have and the money I plan to make once I get a job and the in-between?
The first thing is to create a personal income statement. Keep track of your income from every source you have and keep track of your spendings as well. If you seem to have a higher money spending rate than money income, then it is time that you cut short on your spendings. Certain liabilities can be minimized, increasing your chances to save and manage money effectively. For example, if you have a gym membership that you barely use, it is best that you get rid of it or maybe a Netflix subscription that you do not use. Starting a savings account is a good idea. Investing in the stock market is a pretty good idea, even though there are a few risks. You should not invest more than you can’t afford to lose. So by using these methods, you can manage your money and even make a profit in the long run.
I recently married and need to figure out how to manage money.
If both you and your partner are earning, it is not bad for both to create one income statement and check the total money in and out. However, making separate income statements will be a good idea because you can assess your money ins and outs and figure whether you are in a financially stable position which allows you to save and manage money well. Investing in things you can afford rather than the ones beyond your reach is one of the best ways not to ruin your financial status. Even when buying a house, if you are pursuing homeownership, you should go for a place within your means.
I got my first job, pretty confused about how to manage money.
Start using a personal income statement to get an idea of what you earn vs. what you spend during a week/month. This will help you understand how much money you will end up with after spending on rent, car, food, etc. To get an idea of what you want to achieve in the future, to know a savings goal. Try to sign up for life insurance early as it will be cheaper when you are young. Sign up for a car and home insurance so you are always on the safe side as you will not know the upcoming ups and downs in your life. Have a backup account in case of an emergency. Try to invest in houses or stocks, which will also help in the long run.
Why am I constantly anxious and confused about how to best manage my money for a livable future?
As a responsible citizen, it is always customary to be anxious or confused about best managing your money. It is always a good sign because it tells us that you value your money and want to make the best and maximum use of it. Try to save 10% of your income to another account so you will always have a backup. Try to invest in a property or stock to have your money back later on in life. Maintain a good cash inflow and try your best to minimize the cash outflow.
I’m about to go into high school. Any tips on how I can manage my money during high school? (First job, college, etc.)
Even though trying to maintain a job, stay up with studies and have a relaxed teenage life might be challenging, it’s always a good idea to save up for college or university. You might not have massive bills since you are a teenager. It is essential to understand that you are not in a position to do a full-time job. Try to save up at least 30% of the money you earn for college or a business you want to start later. Try to go for a car that is economical and reliable which will help you in many ways. Ask your parents or a guardian to assist you in making a savings account, so you can deposit 30% of your income, which will help you get an interest from the bank.
Invest in your property:
At the moment, if you are renting out a place, saving money to buy a house is an excellent choice. Your mortgage payments can allow you to build equity, which in turn can help increase your net worth. If you do pursue homeownership, make sure you choose a home that you can afford. Also, it should be within your means.
If you are financially stable, is it still necessary to calculate the personal income statement?
If you are financially stable, is it still necessary to calculate the personal income statement? Some might say saving might be good, but it will not be worth the effort if you do not make sure your saved money inflates. There are a few ways you can increase your saved money, like investing in stocks, etc. Even if you are financially stable at the moment, you can never go wrong with keeping your expenses in check. So, in conclusion, creating a personal financial statement will be very helpful for you now and in the future. Saving money will develop healthy spending habits. Your future self will be thankful because what you do now will drastically benefit you in the future.