We have looked in a previous post (Where to Start on Your Finances) about how to look at your net worth by making a personal balance sheet. Now that you have determined where you stand, let’s look next at your income and expenses by making a personal income statement. For this statement, we will look at revenue and expenses. I will continue off of our previous example and after we have made all of the necessary documents, we can look at the whole picture:

Revenue:

• Wages/salaries (per month, before tax): $3,800
• Other Income: $0

TOTAL: $3,800

Expenses:

• Rent/mortgage payment: $ 846
• Food (groceries and eating out): $ 407
• Utilities: $ 295
• Transportation: $ 120
• Insurance: $ 205
• Clothing, etc.: $ 131
• Other: $ 162
• Debt payments: $ 350
• Income taxes: $ 784_

TOTAL: $3,300

What this information shows is that you are only being able to save:

Savings = Revenue – expenses

Savings = $3,800 – $3,300

So each month, you are $500 which translates to over 3.5 years to pay off all of your current debt of $35,000.

Why is this important? I am sure that at this point you get it: it will take a LONG TIME! But that is only part of the reason why we made this income statement. The real use of this is to see where we can get more savings. Don’t just fill in numbers in this sheet, actually track what you earn and spend. This is not simple, but is extremely useful! These numbers are very telling and illuminate things you may not have known you were spending so much on.

Now you can look at your largest expenditures and see how to decrease them. Maybe it’s moving to a cheaper place to live, or maybe it’s realizing that you have been eating out a ton and you could save $100 on that if you just cooked at home. I also prefer to include the tax as an expense here so you know exactly how much you are paying. Most people just pay taxes without thinking, but go research if there are ways to decrease this expense.

Expenses are not the only piece of the puzzle: revenues are as equally important. The current “Other Income” shown above is at 0. At the same time that you are looking for places to eliminate expenses, also look for new ways to make money. Maybe try a side hustle, writing a book, or even just ask for a raise if you are a great employee. The possibilities are endless; you just need to find out what works for you. Realize that if you change nothing but saving an extra $1,000 a month, you can completely pay off that $35,000 in 19 months (assuming no extra interest). So go look where you can cut costs and where to make some extra money and you will soon be out of debt and on your way to financial independence.