Income Statement Rich but Balance Sheet Poor

Income statement rich but balance sheet poor

People are so accustomed to boasting about how much they make but I think that is irrelevant. What is more important is how much of what you make do you get to keep. In other words you could be income statement rich but balance sheet poor.

Income statement

The income statement is the financial statement that tells you what is left over after subtracting what you spend from what you make. For instance if you make the average American income of $54,000 but spend $60,000 a year, you spend $6,000 more than you make. At the end of the year, you have nothing to show for what you made but more DEBT.

Balance sheet

Balance sheet is the statement that tells you what you have, less what you owe. Another way to say this is it tells you your net worth by subtracting your liabilities from your assets.

Any good wealth building strategy will take the excess from the income statement to build assets instead of liabilities. For instance, if you make $54,000 but spend $44,000 you have $10,000 left over to invest in income producing asset which in turn further increases your income.

When you overspend, it does not matter how much you make as you do not get to keep any of it. As a matter of fact, it seems the more you make, the poorer you really become. Poverty is when your balance sheet shows more debt than assets. Not only do you have nothing, you owe for what you don’t have. This is quite sad!

Proverbs 22:7 ESV

The rich rules over the poor, and the borrower is the slave of the lender.