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Evaluating Your Personal Financial Statement

Tips to help with budget planning and figuring your net worth

what is personal income statement

Month after month, many individuals look at their bank and credit card statements and are surprised that they spent more than they thought they did. To avoid this problem, one simple method of accounting for income and expenditures is to have personal financial statements . Just like the ones used by corporations, financial statements provide you with an indication of your financial condition and can help with budget planning. There are two types of personal financial statements:

Let's explore these in more detail.

Key Takeaways

Personal Cash Flow Statement

A personal cash flow statement measures your cash inflows and outflows in order to show you your net cash flow for a specific period of time. Cash inflows generally include the following:

Cash inflow can also include money received from the sale of assets like houses or cars. Essentially, your cash inflow consists of anything that brings in money.

Cash outflow represents all expenses, regardless of size. Cash outflows include the following types of costs:

The purpose of determining your cash inflows and outflows is to find your net cash flow. Your net cash flow is simply the result of subtracting your outflow from your inflow. A positive net cash flow means that you earned more than you spent and that you have some money left over from that period. On the other hand, a negative net cash flow shows that you spent more money than you brought in.

Personal Balance Sheet

A balance sheet is the second type of personal financial statement . A personal balance sheet provides an overall snapshot of your wealth at a specific period in time. It is a summary of your assets (what you own), your liabilities (what you owe), and your net worth (assets minus liabilities).

Assets can be classified into three distinct categories:


Liabilities are merely what you owe. Liabilities include current bills, payments still owed on some assets like cars and houses, credit card balances , and other loans.

The "debt avalanche" and the "debt snowball" are two popular methods for paying off liabilities , such as credit card debt.

Your net worth is the difference between what you own and what you owe. This figure is your measure of wealth because it represents what you own after everything you owe has been paid off. If you have a negative net worth, this means that you owe more than you own.

Two ways to increase your net worth are to increase your assets or decrease your liabilities. You can increase assets by increasing your cash or increasing the value of any asset you own. One note of caution: Make sure you don't increase your liabilities along with your assets.

For example, your assets will increase if you buy a house, but if you take out a mortgage on that house your liabilities will also increase . Increasing your net worth through an asset increase will only work if the increase in assets is greater than the increase in liabilities. The same goes for trying to decrease liabilities. A decrease in what you owe has to be greater than a reduction in assets.

Bringing Them Together

Personal financial statements give you the tools to monitor your spending and increase your net worth. The thing about personal financial statements is that they are not just two separate pieces of information, but they actually work together. Your net cash flow from the cash flow statement can actually help you in your quest to increase your net worth. If you have a positive net cash flow in a given period, you can apply that money to acquiring assets or paying off liabilities . Applying your net cash flow toward your net worth is a great way to increase assets without increasing liabilities or decrease liabilities without increasing assets.

The Bottom Line

If you currently have a negative cash flow or you want to increase positive net cash flow, the only way to do it is to assess your spending habits and adjust them as necessary. By using personal financial statements to become more aware of your spending habits and net worth, you'll be well on your way to greater financial security.

Wealth Management

Financial Statements

Retirement Planning


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Personal Financial Statement

An individual’s financial position at a given point in time

What is a Personal Financial Statement?

A personal financial statement is a document, or set of documents, that outlines an individual’s financial position at a given point in time. It is usually composed of two sections – a balance sheet section and an income flow section. Although an individual can use more complex personal financial statements, this article will focus on a simple version. The format outlined in this article is a good starting point for individuals who are new to using personal financial statements to record their personal finances.

The Personal Balance Sheet

The balance sheet part of the personal financial statement lists the individual’s assets and liabilities , just as the balance sheet for a business lists all the assets and liabilities of the business.

personal financial statement

The sample personal balance sheet shown above outlines John’s financial position as of August 8, 2017.

As can be seen from the balance sheet, John’s total assets are worth $353,600. His total liabilities are $260,500.

Thus, from analyzing the MS Excel balance sheet, we see John’s net worth is $93,100.

The simple format used above can be modified per an individual’s requirements. For instance, Bob might have 5 checking accounts, 5 savings accounts, 3 houses, and 3 cars. With a few modifications, the template used by John can also be used by Bob.

The Income Statement

Unlike the balance sheet, which lists out all stock variables affecting an individual’s financial position, the income statement lists out all flow variables affecting an individual’s financial position.

personal financial statement

The sample personal income statement shown above lists John’s monthly income and expenses.

As can be seen from the income statement, John’s total monthly income is $12,000. His total monthly expenses are $9,350.

A combined view:

Personal Financial Statement

Why use a Personal Financial Statement?

A personal financial statement can be a very valuable tool in planning out one’s finances. It is usually goal-oriented and can help an individual reach his or her financial goals, especially for young professionals entering the workforce for the first time. Most of these people are new to financial planning and a simple personal financial statement is an easy place to start.

Why Create a Personal Financial Statement in MS Excel?

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Related Articles:

Thank you for reading CFI’s explanation of a personal financial statement. To learn more about finances, cash flows, and financial statements, see the following free CFI resources:

what is personal income statement

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If you’re trying to get a business loan from a bank or financing from an investor, they may ask you for a personal financial statement.

A personal financial statement is a snapshot of your personal financial position at a specific point in time.

It lists your assets (what you own), your liabilities (what you owe), and your net worth.

To get your net worth, subtract liabilities from assets. Your net worth can be either positive (if you have more assets than liabilities) or negative (if you have more liabilities than assets).

Examples of personal assets include:

Examples of personal liabilities include:

Don’t include business assets or liabilities in your personal financial statement.

When Do You Need a Personal Financial Statement?

When you’re seeking a business loan or other outside financing, you may need to share information about your personal financial data with the financing source. If you’re pledging any of your personal assets as collateral for a loan, lenders want to see details about those assets.

Financing sources may also want to assess your personal financial situation to see how well you manage your finances. For instance, if you have few assets and a lot of outstanding debt, it can indicate you might have trouble repaying a loan.

You might also need a personal financial statement if you’re buying an existing business. The business broker and the business owner will want to see evidence that you’re financially able to purchase the business.

If you’re planning to lease commercial office, retail, or other types of business space, the landlord may request a personal financial statement before they approve your tenancy.

Do you need help preparing your personal financial statement? Talk to a SCORE mentor online or in person to get free assistance and advice.

Business Planning & Financial Statements Template Gallery Download SCORE’s templates to help you plan for a new business startup or grow your existing business.

Small Business Loan Applications- Why Are They Asking Me That? This presentation will talk about a dozen or so questions you need the answers to, before you start looking for a small business loan.

Copyright © 2023 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

What Is a Personal Financial Statement?

what is personal income statement

How Does a Personal Financial Statement Work?

Do i need a personal financial statement.

Xavier Lorenzo / Getty Images

A personal financial statement is a physical snapshot of your assets compared to your liabilities. It gives you a real-time view of your wealth and helps you assess your current financial situation. While it's beneficial for your own financial growth, lenders may ask for a personal financial statement if you’re applying for a loan

Key Takeaways

Definition and Examples of a Personal Financial Statement

A personal financial statement is a physical snapshot of your assets compared to your liabilities . It gives you a real-time view of your wealth and helps you assess your current financial situation. While it's beneficial for your own financial growth, lenders may ask for a personal financial statement if you’re applying for a loan

But what are assets and liabilities? Your assets refer to all items you can easily convert to cash, including:

Your liabilities refer to all the debt you owe. They can be:

If your total assets are higher than your liabilities, your personal financial statement reflects a positive net worth . This is a sign that you’re building wealth and signals to lenders that you may be a trustworthy borrower.

If your liabilities are higher than your assets, however, you have a negative net worth. This signals you may be living paycheck to paycheck or spending more than you earn, and you could be seen as a high-risk borrower to lenders.

If you are in a committed partnership or married and share assets, you and your partner can combine assets and liabilities to create a joint personal financial statement.

Suppose you have $200,000 worth of assets. This includes your house, a bank account, and a retirement account. Now let’s say you have $130,000 in liabilities. This includes your mortgage, some student loans , and credit card debt. In this case, your net worth is $70,000.

Here’s an example of how your personal financial statement may look in spreadsheet form:

The Balance

Your personal financial statement will be a lot more complex if you’re creating one for your business. For small business owners, the Small Business Administration (SBA) has a sample personal financial statement you can use as a guide.

Wealth is not defined by the income you accumulate, but by your net worth. A personal financial statement is important because it shows if your net worth is improving or decaying over time. It sheds light on your entire financial picture so you can see if you’re moving closer or farther away from your goals .

For example, suppose your financial goal is to retire early . You’ve officially paid off your debt (minus your mortgage), but you’re not sure how close you are to reaching your retirement goals. You decide to create a personal financial statement to see where you stand.

Below is a guide to how you would fill out your personal financial statement, using the above example.

Step 1: List All Your Assets

Most assets have a clear dollar value (i.e., you can look in your bank account and see what your balance is). But some assets—such as your car, home, or an art collection—may require an appraisal first.

If you’re creating a personal financial statement for a lender, it’s important to be as accurate as possible (and get an appraisal if you’re unsure of the amount). But if it’s just for your own personal records, an educated guess may be fine. This may look like:

Total assets = $950,000

Anything you rent does not count as an asset because you don’t own it. So if you rent a house or lease a car, leave it off your personal financial statement.

Step 2: List All Your Debt 

Your debts are your liabilities. In this example, we’ve stated you’ve paid off all your debt except your mortgage, so that’s the only thing listed here.

Total liabilities = $300,000

If you pay your credit card bill off in full every month, it’s not considered debt, so don’t include it on your personal financial statement.

Step 3: Subtract the Two Numbers To Get Your Net Worth

In this example, when you subtract the assets from your liabilities, you see that your total net worth is $650,000.

Now, suppose you know you need $1.2 million to reach financial freedom and retire early. Your personal financial statement would show that you’re $550,000 away from your goal. You could then update it again next month to track your progress, and make changes to your spending and saving as needed.

Personal financial statements help individuals understand the overall state of their personal or business finances, and calculate their net worth. They can also be used as a tool when applying for credit such as a mortgage, personal loan, or business loan . To get a snapshot of your financial health, it’s a good idea to create a personal financial statement.

Even if you have a positive net worth, it is not guaranteed you will receive a loan you apply for. Credit history and past debts are also taken into consideration by lenders.

The biggest drawback of personal financial statements is that it’s a frozen snapshot of your financial health at any given time. For it to have a positive impact, you have to update it regularly.

The good news is that there are many online tools you can use to automate your personal financial statement. Two popular options include:

Clearview Credit Union. " What Is a Personal Financial Statement? " Accessed Oct. 28, 2021.

Personal Capital. " Our Mission: We Transform Financial Lives Through Technology and People ." Accessed Oct. 28, 2021.

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Table of Contents

What is a Personal Financial Statement?

Document Info

Personal Financial Statement

Personal financial statement form.

A personal financial statement is a form or spreadsheet detailing a person's financial state at a certain point in time. It may be requested by financial institutions or investors if you're looking to take out a loan or secure an investment. It details income; the financial worth of stocks, bonds, annuities, mutual funds, and life insurance; and values certain assets. A total of all assets is provided at the bottom. It's important to note that although there is a total of the value of all assets, not all of what is listed is necessarily accessible. By clicking the green button, you can fill out and print a blank personal financial statement template.

What is a Personal Financial Statement? 

Main components of a personal financial statement, overview of assets, overview of liabilities, additional info required for a personal financial statement, how to prepare a personal financial statement, legal considerations of a personal financial statement, personal finance tips, forms related to a personal financial statement.

Free Personal Financial Statement

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A personal financial statement is used by individuals who would like to take a closer look at their financial health. This statement is typically used to demonstrate a party's creditworthiness or financial stability . This can help them get approved for financing or loans, such as an auto loan, credit cards, or mortgage. It is similar to a credit report.

A sample personal financial statement is available at the bottom of this page.

Who Creates Personal Financial Statements?

A personal financial statement can be used by anyone who wants to get a clear grasp of their financial status. Often, though, an aspiring entrepreneur draws up a personal financial statement to try to get a loan or win over an investor.

The Difference Between a Personal Financial Statement and Other Financial Statements

Once a business is up and running, it becomes enough of an entity to merit its financial statement. An established business entity will have its assets and liabilities and will have enough history to create a profit & loss (P&L) statement . 

However, when a business is just starting, it has no financial history and therefore nothing to base a statement on. Investors and creditors only have the financial integrity of the entrepreneur to go on. Therefore, until your business has seen enough success to have a financial identity of its own, you will be issuing personal financial statements.

A personal financial statement should contain the following basic elements:

Personal information – This means your full legal name, address, telephone number, and any other contact information you’d like to share. This personal information is used to identify who the personal financial statement is for. If you’re an entrepreneur trying to get a loan or investment, you may also want to include the name of your business.

A balance sheet , or “statement of financial position” – This lists your assets and liabilities and calculates your “net worth” by subtracting the number of your liabilities from the number of your assets. 

For example, if you have $100,000 in assets and $65,000 worth of liabilities, your net worth would be $35,000. 

You’ll need to do a bit of research to accurately complete this portion of your financial statement because the valuable property must be appraised. You must also pull your credit report and check the status of all your unpaid debts. 

Below is an appendix in which you provide details about each of the assets and liabilities listed on your balance sheet. This is also the place to describe any miscellaneous liabilities or personal income.

Listing your assets is an important part of your balance sheet. Assets include, but may not be limited to:

Accessible cash – This includes all of your checking account balances and any cash on hand.

The balance of all savings accounts .

The total balance of any retirement accounts you have This should include your IRA.

Accounts and notes receivable - These are debts or payments that are personally owed to you.

The market value of any significant assets - Significant assets may include but are not limited to, automobiles, real estate, life insurance policies, real property, jewelry, and firearms.

Real Estate – Name each piece of real estate and personal property that you own. Specify what type of property it is, the date it was purchased, and its original cost and present market value. You should also include the name and address of each mortgage holder (even if it’s you), each mortgage account number, the balance and status of each mortgage, as well as the amount of money paid against each mortgage every month or year.

Life insurance – List beneficiaries, insurance company details, and the face amount and cash surrender value of each policy.

Your liabilities must also be accurate so that calculating your net worth is accurate. To properly list your liabilities, including the following information:

The total sum of all unpaid accounts . Create an itemized list of all unpaid accounts. Be sure to specify the sum due and to double-check your numbers and your total.

Money owed to institutions – This includes money you owe to a bank, credit union, or any institution that loaned money to you.

Unpaid installment accounts – This part can be a bit confusing. Ordinarily, you list two of these: one for auto payments and one for any other payments made in installments. Mortgage payments should NOT be included here, they should be listed separately.

Life insurance loan , if applicable.

Total real estate mortgage owed , if applicable.

Unpaid taxes - This is specifically referencing back taxes and not estimates or paid for which payments haven’t posted do not apply.

Contingent Liabilities – These are kept separate from normal liabilities because they are, in a sense, not your sole responsibility. List any liabilities you have accrued through endorsement or co-creation of, say, a business, as well as any other special debts such as legal claims or responsibilities and income tax provisions on the federal level.

Notes Payable to Banks and Others – In this section, list the names and addresses of institutions or individuals to whom you owe money (the “Noteholders”), as well as original debts, current remaining debts, child support, and the amounts and frequencies of payment installments.

The total sum of all liabilities . Remember, this number must be accurate because you’ll subtract it from your assets to calculate your net worth.

Your financial statement should include the source of your income. This description can be general. Include your salary, net investment income, real estate income, and any other income you receive. If you have miscellaneous income, be sure to provide details about it.

You should sign and date your financial statement. Before you sign and date it, provide a statement verifying the information preceding, followed by your signature, your printed legal name, your social security number, and the date of signing.

what is personal income statement

Create a free Personal Financial Statement in minutes with our professional document builder.

To create a personal financial statement, follow these simple steps:

Create a spreadsheet that has a section for assets and one for liabilities . You can choose to list liabilities and then assets or assets and then liabilities. You’ll need another section or cell of a spreadsheet that will show your calculated net worth. 

List your assets and their worth . Remember that it isn’t considered an asset unless you own it. It does not include a home or apartment you’re renting or other minor and not highly valued items. Common assets include owned real estate, mineral rights, riparian rights, oil and gas rights, checking and savings account balances, the value of stocks or annuities, the balance of retirement accounts, and valuable assets such as fine art or rare coins. List each asset in its cell. In the cell next to the asset, place the dollar value of the item. 

List every liability as well as its worth . A liability is something on which you owe money or on which you are a cosigner. Examples of liabilities include balances on personal loans, credit card balances, small claims or other court judgments against you, and unpaid state or federal taxes. Name each liability and then in the cell next to it, including the balance.

Determine the total of both assets and liabilities. If you’re using Excel, you can highlight the row that lists the dollar amount of each asset and use the total formula. The same can be done for the liabilities. The total of each should be listed directly underneath their corresponding category. For example, $411,000 in total assets and $125,000 in total liabilities. 

Determine your net worth. To calculate your net worth first create a net worth total cell. Then, in the cell next to it, subtract the total amount of your liabilities from your total amount of assets. Using the previous example, the net worth would be $286,000. 

Depending on the reason you’re creating the personal financial statement, you may also want to include sources of income. This is most commonly done if the personal financial statement is requested because you’re applying for a business loan and will also be providing a personal guarantee for the loan.

A personal financial statement template, or PFS, involves fewer legal considerations than a corporate document. However, because the goal of the document is to create an accurate picture of your financial health, it’s important to make the process just as seriously as you would if you needed to put together any other legal document. 

Audits & Personal Financial Statements

Auditing happens when the IRS or even a court decides they want you to turn over your financial documents because they believe you’re lying about your financial circumstances or hiding money. 

Being audited is stressful. You may end up hiring an attorney or an accountant to help you, which is an added expense you’ll face. Financial dishonesty can also cause you to face civil or criminal charges which can result in fines or even jail time. You could even be forced by the court or the IRS to stop your business operations.

How Many Personal Financial Statements Do I Need?

According to the Small Business Administration’s guidelines , personal financial statements must be completed for every proprietor, every general partner, every limited partner who owns 20% or more of the business, every stockholder holding at least 20% of voting stock, and every loan guarantor.

 Drawing up personal financial statements for each of these parties may seem like a lot of work, but it’s a whole lot easier if you use a simple personal financial statement. Using a template makes the process faster and ensures all your financial statements have the same format.

Personal finance refers to how you handle your money. It includes all of the decisions and activities related to your finances. Some of the most important elements of personal finance are:

Staying on Budget

Managing Debt

Retirement planning

Tips For Staying on Budget

Sticking to a predetermined budget is another essential feature of financial responsibility. Here are some tips to help you do just that:

Set a personal budget with specific financial goals. Don’t budget arbitrarily. Instead, design a budget that charts a course to the financial future you desire.

Cash for currency: when it comes to discretionary spending, the best way to stick to a budget is to withdraw a set amount of cash at the start of each week and make sure you pay for all of your discretionary items with that cash. Having actual money on you at all times will give you a constant reminder of what you can and cannot spend.

Think of spending in terms of your hourly wage: when considering a large purchase, make your decision based not simply on dollars and cents, but on hours-labored to earn the requisite cash. Is the item worth all that work? If so, buy it; if not, don’t. Salaried Workers: to compute your hourly wage, simply divide your monthly check by 160, or bi-monthly check by 80.

Budget by “percentage rules”:

Allot 50% of your income for necessities (rent/mortgage, utilities, groceries, healthcare, car payment, etc.).

Allot 30% for lifestyle (anything that isn’t essential--e.g. Gym membership, restaurants, entertainment, etc.)

Allot 20% for savings (e.g. paying off debt, emergency savings, retirement, etc.)

Prioritize creating an emergency safety net: we highly recommend that you have an emergency savings account with six months of your expenses. Using the percentage rules outlined above, if roughly 50% of your income covers your necessities, your emergency safety net should amount to roughly three months salary (6 months x necessities budget (i.e. 50% monthly salary)

Once you have saved the money required, consider putting it in a separate account and don’t touch it. That way, if the unforeseen happens and your income disappears, you have six months of expenses set aside to tide you over as you plan your financial future.

Tips for Managing Debt

Many are also dealing with debts from a variety of sources--mortgage, student loans, credit cards, etc. Here are some tips to help you pay down your debts as efficiently as possible:

Pay off little debts to free up cash to help you pay off big debts.

Don’t co-sign loans: co-signing can be detrimental to your finances and can strain the relationship with whomever you are co-signing for.

If you are a student, fill out a FAFSA regardless of whether or not you think you are eligible for financial aid. Financial aid is an umbrella term for a wide range of benefits, don’t assume that your or your parents’ income alone determines eligibility.

If you are considering purchasing a home, try to keep your mortgage payments below 30% of your gross monthly income. Below 28%, is even better.

Tips for Retirement Planning

Start saving early and as much as possible.

Take advantage of any employer-match programs. The most common of these are 401Ks. Many employers match, up to a certain amount, of employee contributions to their 401k. This is essentially free money that, if taken advantage of, will significantly increase your savings potential and retirement fund.

Avoid cashing out early at all costs. Doing so comes with punitive penalties and taxes.

Helpful Personal Finance Tools

Numerous financial tools will help you to organize your finances better. We have selected a few of our favorite resources for you to check out below:

Quicken Personal Finance Software

US Department of theTreasury Department Personal Finance Resource Page

Bill of Sale : A bill of sale is a document that recognizes the sale of an item from one party to another. 

Business Plan : A business plan is a document that defines the financial aspirations and obligations of potential business. 

Loan Agreement : A loan agreement is a written document that details the approved financial arrangement between a lender and a loan recipient.

Promissory Note : A promissory note is a document that certifies the guarantee of a borrower to repay a loan in full by a promised date.

Download a PDF or Word Template

A Personal Finance Statement itemizes all of your current assets and liabilities from which your net worth can be calculated. It may list: real estate, investments, bullion, or other fungibles.

what is personal income statement

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Employment Letter of Recommendation

An employment recommendation letter is an independent assessment of a person's suitability for a particular job.

Business Plan

A Business Plan is essential for establishing the aims of a company. It sets out strategies and objectives, detailing the why, who, what and how with associated schedules and milestones. It serves to keep a new business on track and supports funding applications.

Sample Personal Financial Statement

what is personal income statement

Understand Your Financial Position With a Personal Income Statement

A personal income statement tracks your income and expenses. it can be used to improve your financial management strategy..

Chris Scott

Chris Scott

Learn how to create a personal income statement to keep an eye on your cash flow and decide how to adjust your budget and financial plans.

March 31, 2022

In business, an income statement shows a company’s revenues and expenses during a certain period. By crunching these numbers, businesses can analyze their net income, measuring their profitability.

What if you could apply these same concepts to your personal finances? We’ll explain how to do just that.

In this article, we’ll teach you everything you need to know about personal income statements. We’ll specifically cover:

What they are

How you can use them to understand your financial position better

How you can go about setting them up

By the end of this article, you should have a better idea of how you can implement income statements into your financial management strategy.

What is a personal income statement?

A personal income statement shows the inflows and outflows of money from an account. If you have more coming in than you’re spending, you’ll have a net profit and a net loss if you have more money going out than you’re bringing in.

The personal income statement measures your inflows and outflows over time. You can set up your personal income statement any way you’d like, and two of the most popular options are monthly and quarterly. 

For instance, if you’re using a monthly statement, you’ll track your monthly income versus monthly expenses . In the sections below, we’ll go more in-depth on ways to set up a personal income statement.

Personal income statements help you track spending. Your goal should be a positive cash flow. If you have a negative cash flow, figure out why. 

If you can’t cut back on any expenses, do you need to find another source of income ? What your personal income statement ends up showing could lead you to do something like implement a budget or take on a side hustle.

How can income statements help you understand your financial position?

what is personal income statement

Income statements are a tool to help you better understand your financial position. If you have a net profit, you have cash available to do things like:

Pay down debt from credit cards, student loans, personal loans, automobiles and mortgages

Build emergency reserves in a savings account

Fund your retirement accounts and IRAs

Purchase a rental property that you can use as a source of real estate income

On the contrary, if you have a net loss, you may have to tap into a savings fund or borrow money to pay expenses. While this may happen occasionally — rainy day and emergency funds exist for a reason, after all — it’s problematic if it occurs routinely. Having a net loss for a few periods in a row may result in debt , which can become difficult to repay because of interest .

Thus, income statements are useful because they offer a snapshot of your personal financial situation and cash flow over a period. They can help you identify trends and patterns that eventually lead to bigger issues.

It’s worth noting that your income statement — and, specifically, whether you have a net profit or net loss — is different from your net worth . Your net worth measures your total assets and total liabilities against each other. You obtain your net worth by analyzing your personal balance sheet. Using the income statement and balance sheet together helps measure your financial health.

In general, there are four scenarios that your income statement and balance sheet will yield:

Positive cash flow (net profit), positive net worth

Positive cash flow, negative net worth

Negative cash flow, positive net worth

Negative cash flow, negative net worth

You should strive to have a positive cash flow and a positive net worth. On the other hand, a negative cash flow and a negative net worth is the worst scenario that you can find yourself in.

Having a positive cash flow can help get you on track if you have a negative net worth. You can use your excess income to pay down debt and work toward achieving a positive net worth.

For instance, let’s say that your salary plus themoney you earn from a side hustle yields a net profit of $300 monthly. On the other hand, you have minimal money in savings, a new car loan and credit card debt. Your net worth is negative $5,000. You can use your $300 per month to pay down credit card debt or accelerate your car payment to help work toward a positive net worth.

The greater your net worth, the more likely you are to be financially stable. A positive net worth offers flexibility to work toward your financial goals . If you want to obtain and maintain a positive net worth, you’ll need to have a positive cash flow. The personal income statement can be useful.

Lastly, when you use your income statement and balance sheet together, you can better picture your overall financial situation.


How can you set up your personal income statement?

To set up your personal income statement, define the period you want to analyze. If you’re someone who needs to monitor spending or is working toward a specific goal, you may consider producing a monthly statement. If you have a history of positive cash flows and net worth, you may only need to look at your statement quarterly or annually. For the sake of discussion, let’s assume you choose a monthly personal income statement. 

Next, you’ll want to choose the tools to record the information. Some people prefer the pen-and-paper method, while others would rather use a spreadsheet. You may even be able to find an income statement template online. If you take this route, try to find one for personal finances and not for small business owners, as the categories listed may not apply to you.

Ultimately, it comes down to a matter of personal preference. The more comfortable you are with your income statement, the more likely you are to use it.

Once you’ve determined this, list your sources of income and the total amount of money you have coming in. This will likely include your salary or hourly wages and any other income you have from a side hustle, Social Security, alimony or child support payments.

It could also include any passive investment income you have, like those derived from dividends , but only if you plan to use that money as part of your monthly income. If you’re going to reinvest it, don’t include it as a source of income. Instead, it’ll appear as an asset on your balance sheet.

Once you figure out your monthly income, record your monthly household expenses/living expenses . These are expenses that you can reasonably anticipate, including:

Rent or mortgage payments

Car payments

Loan payments

Minimum required credit card payments

Gas or other travel expenses

Internet and cable

Child support and alimony

Health insurance payments

Life insurance payments


Let’s say that it’s April 1 and you’re setting up your income statement. Go through your bank and credit card statements for March and determine how much you spent for each one of these categories.

This brings up one of the potential downsides of a personal income statement. Income statements are reactionary, meaning that they only show past data. You can use this data to identify future deficiencies and create a budget. If your expenses are relatively routine, you can reasonably predict future cash flows.

As an example, let’s consider the following cash flow. 

Income sources include: 

Monthly net income from a full-time job: $3,000

Monthly side hustle income: $500

Expenses include: 

Monthly rent payment: $1,000

Monthly car payment: $250

Monthly loan payment: $250

Required monthly credit card payment: $50

Monthly transportation expenses: $300

Monthly internet and cable expenses: $50

Monthly grocery expenses: $550

Monthly subscriptions: $50

In this scenario, the monthly income is $3,500. The monthly expenses are $2,500. The net profit is $1,000 per month.

A personal income statement can help with financial management

what is personal income statement

If you’re hoping to understand your finances better, you may consider using a personal income statement. It allows you to track your income versus your expenses over time. Doing so helps you monitor and improve your personal finances and can help with future financial planning.

Your personal income statement may yield a negative net income. While it’s understandable that this may happen every once in a while, it shouldn’t be a recurring theme.

If you’re borrowing a lot of money with credit cards, you may consider using tools to help you pay down your credit card debt. One tool that you can use is Tally’s credit card payoff app† . Tally helps you pay down higher-interest credit card debt quickly and efficiently with a lower-interest line of credit, improving your overall financial health. 

† To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.

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