How to Calculate Your Net Income

1. Introduction: Hi there, My name is Josh, not a business consultant for magnolias consulting based out of Saskatoon, Canada. And today I'm going to teach you how to make your own personal income statement. Now, what is an income statement? It's a type of financial document usually used by companies in order to take a look at their expenses and our income to see if they're operating at a surplus or a deficit. However, this type of financial statement can be used for individuals as well for the same reason, to look at your income and expenses and determine if you're operating at a surplus or a deficit. And this can be for a given period of time, including a month, a quarter, or a year, or whatever you choose. 2. Course Objective: Alright, let's get started on the instruction for the class. So this is under the category of personal financial management. And we're going to look at how to make your own personal income statement today. The course objective is to improve self-awareness of personal financial situation by creating a personal income statement. Looking at personal financial statements, I covered the balance sheet in a previous class that they were going over the income statement. So balance sheets and income statements help us use real numbers to better understand our personal financial situations. They're normally used in business settings, but are also very useful for personal finance. So the personal income statement, looking at that more closely, That's an important financial document that can be applied to personal use, shows cash flow for a given period of time. So cash coming in, money coming in, as well as money going out. It shows an individual's regular income and expenses and useful for determining spending surpluses or deficits. Some of the main differences between a balance sheet and an income statement. The balance sheet is a snapshot of the financial position for a single day, showing what a individual owns versus what they owe compared to an income statement. An income statement is a recording of regular income and expenses for a given time period, such as a month or year that shows typical money inflows versus typical outflow. Lastly, just to summarize the main objectives of each financial, each financial statement, a balance sheet is asking, do you own more than you owe? Are your assets greater than your liabilities? Or are your liabilities are greater than your assets? And then an income statement, which is what we're going over today, is asking, do you receive more than you spend you have more money coming in than going out for the specified period. Again, where that's a month, a quarter, or a year. 3. Income Explained: Next up, let's look at income and expenses. First off, we'll start out with income. So income is money or financial resources being received. So some examples of income would be things like salary, wages, rental income, dividends, passive income, child support, support, unemployment insurance. And here's a few more examples of some ideas for income. So as I mentioned, wages. And that could be your regular wage, could be Commission if you are in some type of commission on sales tips, if you're in the service industry allowance, maybe you are collecting allowance from your parents, childcare, child support payments that you're receiving, rental revenue. If you have maybe someone renting your basement suite or you own some rental property, stock dividends, passive income. Maybe you've done something where you you've generated passive income and that's coming in on a monthly basis, or GST rebates for Canadians, some are getting GST rebates quarterly. So those are just some examples. That's non-exhaustive list. It depends on your situation. You might have one form of income. You might have ten. It just really depends on your situation. So just do your best in adding those all up and make an itemized list when you're inputting those just to make sure that you're including every source of income that you have. 4. Expenses Explained: Now that we've looked at income, let's take a look at expenses. So what is an expense? That's money or financial resources being spent on going. So some examples of expenses would be things like rent or mortgage payments, car payments, phone bill and other utilities, groceries, gym, membership, and gas. A few more ideas here. So as I mentioned, rent and mortgage, that could be various different types of insurance, property insurance, vehicle insurance, health insurance, food, and that could be groceries, restaurants, things like that, clothing. If you're having regular monthly expenses or quarterly expenses for clothing, interest incurred on loans, phone bills, subscriptions to various different magazines or online platforms for audio or video subscriptions, gym memberships or other memberships like that. Water bill, gas bill, electric bill, property tax, fuel for a vehicle, and then other fees. Maybe you have to pay fees for your employment or something like that, or some type of membership fees or that could even be condo fees for condo ownership. So that's not an exhaustive list. Those are just some examples. You may have five that show up on your income statement. You may have 50. It really depends on you. But just keep in mind that those are different forms of money and financial resources that are outgoing that you're spending on a regular basis. 5. Additional Instructions: Okay, so now that we've done over income and expenses, I just want to go over a few more details before we start filling out our own personal income statement. So a few points here. Remember, income statement is a measure of regular income and expenses for a month, quarter, or year. So before you start, you need to select which one you're going to do. Is it gonna be a month, a quarter, or a year because it will vary. The numbers that you put in your income statement will vary depending on which one you choose. So just get very clear for us which one you're gonna go with. I personally think month is the best for a personal one, but it's totally up to you. Second point, use averages if there's monthly variation. So I'm gonna get into that a little bit more in a bit here. But sometimes income doesn't come monthly, it comes weekly or quarterly, and the same thing with expenses. Sometimes you might have weekly expenses or bi-weekly or quarterly or annually. So we have to pay attention to that as well and make some adjustments. And then lastly, interests charged as an expense, payments to a credit card or not. So if you have credit card debt or a line of credit and you're getting monthly interest charges. Those are expenses, payments that you're making. If you're paying off $500 per month, that's not an expense because you already have incurred that amount of debt. It's not a new incurring expense. It's just the schedule in which you're paying off that existing debt. So just getting into some more details here on inputting income and expenses that are not charged with the same frequency as the income statement you are making. So e.g. if you're making a monthly balance sheet, but you have bi-weekly or monthly mortgage payments, quarterly GST rebates, or weekly subscription fees. You're going to have to make some adjustments there to make sure that the amount that you're charging is appropriate for a month. So I'm just gonna go over some calculations here for you as an example. So let's say e.g. we have bi-monthly mortgage fees, are paying rent or mortgage payment twice per month. And let's say the amount we're paying twice per month is 800. But we want to do a monthly income statement because we're being charged twice per month. We're going to have to make a calculation here to figure out what our actual monthly cost is. So to do that, if we have twice a month, twice per month charges of $800, then all we have to do is multiply that by two and we're paying $1,600 per month because two payments per month times $800 equals $1,600. Next example is a quarterly GST rebate. So if you are receiving quarterly GST rebates, those are gonna be quarterly, which is one per three months, let's say e.g. you're receiving $150 quarterly and you want to figure out the monthly amount for that, all you have to do is divide that by three because it's three months. So you take your income hundred and $50 divided by three, and then you get $50 per month. Then lastly, here's another example. Now this is a form of expense. So the first one was mortgage expense, second one was quarterly GST rebate, which is a form of income. And then lastly, a weekly subscription, which is a form of expense. So with this, you're paying once per week and let's say you're paying $10 per week, you want to figure out what, how much that's going to cost you on a monthly basis. So an easy way to calculate that. If you just want to assume that there's on average about four weeks per month. That's an easy way to calculate it. So you just multiply $10 by four and that's how much you're paying monthly. However, you can get a more accurate calculation here by taking the $10, multiplying that by 52 because there are 52 weeks per year. And then dividing that by 12 because there's 12 months per year, and then you get a more accurate number of $43 per month. Both are okay, it's not a real big deal. The second calculation is more accurate. The first one is a little bit easier. So it's up to you how accurate you want to be, how much time you want to spend on those calculations. I just want to try and add a little bit extra clarity to this one point because I know it is complicated and it can be confusing. This point here, interest charge is an expense payments to a credit card or not. So if you have credit card debt, let's say you have $2,000, you're going to your credit card. And if you don't pay that, your credit card is going to charge you a monthly interest expense. So that's a new charge, that interest expense, maybe it's $30 a month. You can add that to your income statement as a monthly expense. Whereas if you decide to pay that credit card off in say, 500 dollar increments per month. So you're moving out $500 from your checking account per month. That's not a monthly expense. That doesn't actually go on your income statement, that goes on your balance sheet. Because rather than keeping that money in your savings account, you're moving it to pay off your debt. But in order to get that 2000 dollar balance on your credit card, you paid for expenses with your credit card. So maybe you paid for gas, maybe you paid for your phone bill, maybe you paid for groceries. Those expenses already incurred. It just so happened that you paid for them on your credit card. So in the case of a credit card, if you're not paying off your credit card debt, you're incurring additional penalties, which are interests, expenses every month. So you can include that whatever it is 2030, 40, $50 per month interest expense on your income statement as a monthly expense, if you have that outstanding credit card melons. And now it also gets a bit confusing. I mean, hopefully that makes sense, but it gets a bit more confusing too. When you look at mortgages and car loans and stuff like that. The difference there is that a mortgage has an amortization period. You're not expected to pay it back right away, like you are with a credit card and they're not gonna give you extra interests charges on your mortgage if you don't pay it back right away. There's a set amortization period, usually that's 2025 years. And there's a set schedule there where your monthly expense is your mortgage payment and a set amount of interests is included in there. If you were to pay off your total mortgage today, you're not going to have to incur the additional interests you would have if you paid it off over the course of 25 years. So hopefully that makes some sense. So a credit card balances, Let's say you have $2,000 on your credit card that goes on your balance sheet as debt. But if you're not paying that off, your monthly interests expenses go on your income statement. Whereas with a mortgage, the principal owing goes on your balance sheet. But the amount you have to pay each month or bi-weekly goes on your income statement. 6. Section 1 - Basic Details: Alright, let's get started on the first section of the income statement. So for this example, starters, we want to put the name of the individual. So Sarah Jones is the individual we're using here. Then the title of the document or the financial statement, which is called personal income statement in this case. And then lastly, you want to put the time-frame for the month of September 2022, this example. So this would be an example of a monthly income statement. If you're doing quarterly, you want to change that. If you're doing annual, you want to change that. So if you're doing annually, e.g. you would put for the year 2022 or for the year 2023. If it were quarterly, you'd want to put for one or for the first quarter of 2021 or 2022, or whichever year that you're using. And then just look at one more quick example that I did. So I use my name here, personal income statement, and then for the month of November 2022. So you should always have the name of the individual, followed by the title of the document, followed by the time period that the income statement is for. 7. Section 2 - Income: We've already covered the first part there at the top. The second part now we're looking at income and in this case we're doing monthly income. You can have that as the title or subtitle there. And after that you want to start inputting the items, the forms of income. So in this example, I kept it very basic with just two different forms of income. Number one is salary. So you write that on the left underneath that basement suite rental income. You can write that on the left as well. And then you want to add your totals on the right. So in this case, salary being $4,200 per month and basement suite rental income $1,100 per month. After that, bottom left, you want to add that all up and write total monthly income. Then on the right, you just do the calculation. So calculation just equals the sum of all the numbers here. So 4,200 plus 1,100 equals $5,300. So the total monthly income for this example is $5,300. Okay, And just another look at that other example I have that I've saved as a PDF. The second section, monthly income, have your itemized list, total values per item. And then the bottom there you have monthly, total monthly income. And the total value of all the items in that list. 8. Section 3 - Expenses: Now that we've covered the first two sections, the basic details at the top. The second section was the monthly income portion. We can move on to the third portion now, the third section, which is monthly expenses. We do that the same way as we did the income section. Only we're using expenses rather than income. So you can have your title here, monthly expenses, or if you choose to do quarterly or annually, you can put that. And then on left you put the items, the forms of expenses. So some examples here, mortgage payments, vehicle payments, groceries, and cell phone. Of course, most people are gonna have more than that, but this is just a simplified example. On the left you put all the items and then over here on the right, you put their monthly values. For this example, the monthly expense for mortgage payment, the monthly amount is $1,900, $370 as a monthly vehicle expense, for $455 as a monthly grocery expense, and $65 as monthly cellphone expense. At the bottom on the left here you put total monthly expenses. And then on the right we just calculate the sum total of all the different expenses. So if you add those up, you get $2,790 for total monthly expenses based on this example. Okay, now back to the other example here, section number three, monthly expenses. Again, you have your itemized list on the left with each item, And then on the right you have the total monthly value for each item. Underneath that, the total monthly expenses. And on the bottom right, you just have the calculation of each monthly expense added up altogether to get your total. 9. Section 4 - Net Income: Okay, So now we're done the first, second, and third sections. So we can move on to the fourth and final section, which is the final calculation and that is calculating the monthly net income. So to determine if you have more coming in than going out or vice versa. So all you do for that section is at the bottom you write a monthly net income. On the left and then on the right, you have your calculation. So all you do for this is you take the total monthly income and then from that number, you subtract total monthly expenses and you get your net income. So in this case we take $5,300 and from that we subtract 2,790. And that leaves us with $2,510, which means this individual has a positive net income of $2,510, which means they're receiving more than they're spending on a monthly basis. And one, Let's look at this other example. The bottom here, the calculation for net income. All you have to do is take this value, the total monthly income value. And then from that you want to subtract the total monthly expenses value. So we have 6,700 -3,170 and we get a net income of positive 3,530. 10. Inputting Basic Details: Okay, so now that we've covered the basic instructions, Let's try making a personal income statement together. I'm going to do mine in Google Spreadsheets here, Google Sheets. But you can do it on paper. You can do it in a Word file and you can do it in Microsoft Excel, anything you want, basically. But I like using a spreadsheet just because it organizes the information in calculations very well. So to start out with, let's give it a title and we'll call it personal income statement. Now for starters, we want to input our basic details. So first let's put a name. I'll put my name, Josh canon. Secondly, we want the title personal income statement. And lastly, we want the time period for the month of, let's say, November 2022. So again, this can be for a quarter a year. Just make sure that you state accurately which time period is four. 11. Inputting Income: Next up is the second section, which is the income section. First off, I want to make a quick adjustment here. I'm going to center this text and I'm going to hide the grid lines. So to hide the grid lines, I click on view. This is in Google Sheets. I click on View, Show grid lines. So grid lines are gone. And now with that second section, I'm going to start here and call that monthly income. That in capital letters, can bold that. And then underneath that we want to start our itemized list of forms of income. So let's just come up with some examples. For most people that's going to be wages or salary. Maybe some rental income. Maybe they're getting some child support payments. And maybe they have a little bit of passive income. Maybe they made some online videos or offer some type of e-book or something like that and the receiving some income for it. So just some general forms of income. We write those on the left. And then what we can do on the right here is add the total monthly values. Let's assume this person is getting paid once per month. Again, if it's twice per month and you want to do that adjusting calculation that I showed you earlier. Let's assume this person is getting paid, let's say $5,000 per month and they're getting paid once per month. Rental income. Maybe they're getting $1,000 per month. Maybe they have a basement suite in their house. Child support. Maybe they're getting, I don't know, $400 per month and child support payments and passive income, maybe they have some online e-book they're selling or something and they're getting $50 a month. Okay. Now I know for everyone this is gonna be, it's gonna be very different. So this is just an example to go over. If you have once you have all your forms of income listed underneath that, you can put total monthly income. We can bold that as well if we want to. Then that's the bottom left and then on the bottom right we want to do the calculation. The calculation is simply equals and then some open the bracket, highlight all the numbers we want to summarize or include. And then close the bracket and hit Enter. That should give us our total. We can bold that. So basically this individual, I guess using myself as an example, is a hypothetical here. Wages of $5,000 per month plus rental income of $100 per month, plus child support, a $400 per month, plus passive income of $50 per month. You add those all up and you get total monthly income of $6,450. 12. Inputting Expenses: Moving on to the third section here. And now that we're done the first and second, we want to write monthly expenses in bold. And then underneath that we want to start our itemized list. So what are some common monthly expenses people might have? Maybe their mortgage, mortgage payments. Maybe there what else do we have? Groceries, maybe their phone bill, car payments, and maybe a gym membership. So we want to try and get everything, but this is going to vary a lot from person to person. So we have our title, we have our itemized list and on the left and now on the right we want to write the total dollar amounts per month in this case. Let's say the mortgage payment per month is say $2,000. Groceries, 500, phone bill is 80. Car payments, two-hundred, and gym membership is $50 per month. It's now we have our title, we have our itemized list and we have the dollar amounts for each month, for each item on the list. After that, we can put the bottom rating here, which is total working capital letters, total monthly expenses. And we can bold that. And then bottom right here we want to do the calculation, so equals open the bracket. And then we want to sort of put equals and then some open the bracket, highlight all the numbers we want to calculate together. Close the bracket, hit Enter. We can bold that as well. So now we have our total monthly expenses calculated and added up and the final number is $2,830. 13. Calculating Net Income: Okay, on to the fourth and final section, we're done. The first three, final section is just calculating our net income. So we can write that at the bottom, right it in bold income on the left and then bottom-right, we're just doing the calculation. So all we do for that is we hit equals and we're taking our total monthly income number. And from that we're subtracting or total monthly expenses. And then we just hit Enter. So our total value is $3,620 as our net income and it's a positive value. And the reason for that is because our total monthly income is $6,450. Our total monthly expenses are 2,830 for a positive difference of $3,620. If the reverse where true, where total monthly expenses were greater than total monthly income, then we would have a negative number and a negative net income. And for this instance we're using a month. So it'd be a negative monthly net income. But because it's positive, because our monthly income is greater than our expenses, net income is a positive number. 14. Formatting The Income Statement: Okay, and just one more thing here. This is totally optional. It's up to you if you want to do it or not. But I like to format my spreadsheets a little bit just to make them look nicer. So for starters, let's zoom out a little bit and make this 90% instead of 100. And then I'm going to add a border around the income statement. Just highlight everything I want. And then up here click border. And you can adjust the thickness of the line. So I like the second one here. Next up, I'm going to merge these cells just so it's centered. I mean, they're already pretty good, but there we go. Merge this one as well. And merge this one. I'm just clicking at the top right here. Okay, Now it's going to fix my border. So highlight that again and click on the border again. That's fixed. Other thing you can do is just make your rose a little bit thinner here at the top. Just so that the text is closer together. Struggling with that one a little bit. Okay? Another thing you can do here is for your subtitles, you can change the color of them. So let's make this like a light blue, the same for monthly expenses. Another thing I like to do is bold the top texts, the basic details there. So we'll make that bold. And then maybe at the bottom we want to put a border around net income. Do the thicker line. And we can also change the color of this two. We can make it a blue dot, light blue. Using the fill color, light blue. This is optional. You can do it how you want to do it. I just like making my spreadsheets look fancier. 15. Income Statement Review: Alright, now just a quick review of the income statement in spreadsheet form here. The top you want the basic details. So the name of the individual, the title, which is personal income statement, and then for the time periods so for the month of November 2022, if you're doing a quarter, put that if you're doing a year, but that just be clear, about which timeframe that you're actually using. Next two on your monthly income with the itemized list underneath. And then on the right side, you want the monthly figures or quarterly or annually, whichever use you want the monthly figures on the right side there, underneath that you want total monthly income. And then the total monthly income calculation on the right side there, which is just adding up all the total monthly incomes. Underneath that you want monthly expenses. And then again, your itemized list here of the different monthly expenses that you have. And on the right, you want the values of each monthly expense. Underneath that you write total monthly expenses. And bottom-right there, you're adding up all your total monthly expenses values. And lastly, net income. Net income is just the subtraction of total monthly expenses from your total monthly income. So all you do is take total monthly income and from there, subtract total monthly expenses, you get your net income. So what does the finished income statement tell us? If your regular expenses are greater than your regular income, then you're operating at a deficit and will reduce your net worth over time. Whereas if your regular income is greater than your regular expenses, then you're operating in a surplus and will increase your net worth over time. 16. Class project: Okay, so that concludes the instructional portion of the class. Next up is a class project, which of course is to make your own income statement. And you can do that on paper. You can do that in a Word file on a spreadsheet, however you wanna do it, I would recommend uploading it as a picture file or a PDF. And also keep in mind, as I mentioned before in the class, that a personal income statement has personal and private and sensitive financial information. So I don't want anyone sharing that. But what you can do is create a hypothetical or a fictional character and put fake numbers in there. Or what you can do is take your income statement, just change the numbers before you submit it, especially if you're submitting it for public feedback. So all you have to do is follow the steps in the class. Start out with the basic information at the top, and then do your regular income for the given period of time that you choose. And then do your regular expenses for that same time period. And then you just calculate the difference, the surplus or deficit. Again, you can do that in a Word file or on paper or a spreadsheet. It's up to you. It's not so strict with how you do this. What's important is that you have the correct information in there and you follow the general formatting, but feel free to tweak it. And you can put the items in different order or whatever you choose. 17. Conclusion: Alright, so that's it for the class. Thank you for watching. Hopefully that was helpful. Hopefully it was clearly explained and hopefully that'll become a useful tool for you to better understand your financial situation. You can see other videos on my channel and as well, you can follow me on Instagram at MAG NAL to us, that's Megan artists on Instagram. Thanks again for watching.