Do you really know what you own and what it’s worth? And do you know just how much you have in outstanding debt?
If the answer to these questions is “no,” then it might be wise to put together a personal financial statement. This document can give you a good “lay of the land” as far as your finances are concerned. And it’s a handy resource should you decide to retire, change careers, or make some other major life decision that calls for a financial gut check.
When piecing together a personal financial statement, a balance sheet is a critical part of it. A balance sheet essentially shows what’s owned by you and what you owe. It basically is a reflection of your personal net worth.
Setting up a balance sheet can be accomplished with a software program (there are many versions out there that are available for free or to purchase). Or you can just put pen to paper. Create a column on the left for assets, and a column on the right for liabilities. Assets include bank account balances, stock holdings, any property you possess such as real estate, etc. Liabilities, meanwhile, include a mortgage, car loans, credit card debt, and college loans.
By subtracting your liabilities from your assets, you’ll arrive at your net worth.
To complete a personal financial statement, you need to create an income statement. This shows how much you earned and how much you spent in a specific period of time, such as the past month or year.
Setting up an income statement is similar to creating a balance sheet. Establish a column that shows all of your income, including salaries, bonuses, rental income, etc. Then draw up another column for all of your expenses. This would include such things as utility bills, mortgage payments, and grocery bills.
Chances are you will also have income or expenses that aren’t periodic, so you should create a column that takes this into account. Examples would be a significant tax return or a major home repair.
The difference between your income and expenses will give you your net income.
Once you have your personal financial statement, consider running it past a financial consultant to ensure you’ve covered all your bases.