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Personal Financial Statement: Definition, Uses, and Example

What Is a Personal Financial Statement?

The term personal financial statement refers to a document or spreadsheet that outlines an individual's financial position at a given point in time. The statement typically includes general information about the individual, such as name and address, along with a breakdown of total assets and liabilities . The statement can help individuals track their financial goals and wealth, and can be used when they apply for credit .

Key Takeaways

• A personal financial statement lists all assets and liabilities of an individual or couple.
• An individual's net worth is determined by subtracting their liabilities from their assets—a positive net worth shows more assets than liabilities.
• Net worth can fluctuate over time as the values of assets and liabilities change.
• Personal financial statements are helpful for tracking wealth and goals, as well as applying for credit.
• Although they may be included in a personal financial statement, income and expenses are generally placed on a separate sheet called the income statement.

Understanding the Personal Financial Statement

Financial statements can be prepared for either companies or individuals. An individual’s financial statement is referred to as a personal financial statement and is a simpler version of corporate statements . Both are tools that can show the financial health of the subject.

A personal financial statement shows the individual's net worth —their assets minus their liabilities—which reflects what that person has in cash if they sell all their assets and pay off all their debts. If their liabilities are greater than their assets, the financial statement indicates a negative net worth. If the individual has more assets than liabilities, they end up with a positive net worth.

Keeping an updated personal financial statement allows an individual to track how their financial health improves or deteriorates over time. These can be invaluable tools when consumers want to change their financial situation or apply for credit such as a loan or a mortgage . Knowing where they stand financially allows consumers to avoid unnecessary inquiries on their credit reports and the hassles of declined credit applications.

The statement allows also credit officers to easily gain perspective into the applicant's financial situation in order to make an informed credit decision. In many cases, the individual or couple may be asked to provide a personal guarantee for part of the loan or they may be required to put up collateral to secure the loan.

Special Considerations

A personal financial statement is broken down into assets and liabilities. Assets include the value of securities and funds held in checking or savings accounts , retirement account balances, trading accounts , and real estate. Liabilities include any debts the individual may have including personal loans, credit cards, student loans, unpaid taxes , and mortgages. Debts that are jointly owned are also included. Married couples may create joint personal financial statements by combining their assets and liabilities.

Income and expenses are also included if the statement is used to attain credit or to show someone's overall financial position. This can be tracked on a separate sheet or an addendum, called the income statement . This includes all forms of income and expenses—typically expressed in the form of monthly or yearly amounts.

The following items are not included in a personal financial statement:

• Business-related assets and liabilities: These are excluded unless the individual is directly and personally responsible. So if someone personally guarantees a loan for their business—similar to cosigning —the loan is included in their personal financial statement.
• Rented items: Anything rented is not included in personal financial statements because the assets aren't owned. This changes if you own the property and rent it out to someone else. In this case, the value of the property is included in your asset list.
• Personal property: Items such as furniture and household goods are typically not included as assets on a personal balance sheet because these items can’t easily be sold to pay off a loan. Personal property with significant value, such as jewelry and antiques, may be included if their value can be verified with an appraisal .

Business liabilities are only included in a personal financial statement if an individual provides the creditor with a personal guarantee.

Keep in mind. Your credit report and credit history are big considerations when it comes to getting new credit and every lender has different requirements for issuing credit. So, even if you have a positive net worth—more assets than liabilities—you may still be refused a loan or credit card if you haven't paid your previous debts on time or have too many inquiries on file.

Example of a Personal Financial Statement

Let's assume that River wants to track their net worth as they move toward retirement . They have been paying off debts, saving money, investing , and are getting closer to owning their home. Each year, they update the statement to see the progress they have made.

Here's how they would break it down. They would list all their assets—$20,000 for a car, $200,000 for their house, $300,000 in investments, and $50,000 in cash and equivalents . They also own some highly collectible stamps and art valued at $20,000 that they can list. Their total assets are, therefore, $590,000. As for liabilities, River owes $5,000 on the car and $50,000 for their house. Although River makes all of their purchases with a credit card, they pay the balance off each month and never carry a balance. River cosigned a loan for their daughter and $10,000 remains on that. Even though it is not River's loan, they are still responsible, so it is included in the statement. River's liabilities are $65,000.

When we subtract their liabilities from their assets, River's net worth is $525,000. Although they use it mainly to track their financial health, River can use this information—and the statement as a whole—if they want to apply for any other credit.

Small Business Administration. “ Personal Financial Statement .” Pages 2-3.

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Home > Finance > Personal Financial Statement: Definition, Uses, And Example

Personal Financial Statement: Definition, Uses, And Example

Published: January 7, 2024

Learn about the definition, uses, and example of a personal financial statement in the world of finance. Understand its importance and impact on your financial planning.

• Definition starting with P

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Understanding Personal Financial Statements

When it comes to managing your finances, having a clear understanding of your financial position is essential. This is where personal financial statements come into play. In this article, we’ll explore the definition, uses, and provide an example of a personal financial statement.

Key Takeaways:

• Personal financial statements provide a snapshot of an individual’s financial position.
• These statements are useful for assessing one’s net worth, cash flow, and financial health.

A personal financial statement is a document that summarizes an individual’s financial situation, including their assets, liabilities, income, and expenses. It provides a comprehensive overview of one’s financial health and can be an invaluable tool for making informed financial decisions.

Let’s delve deeper into the various components of a personal financial statement:

Assets refer to items of financial value that an individual owns. This can include cash, savings accounts, investments, real estate, vehicles, and personal belongings. In the personal financial statement, these assets are listed at their current market value. By calculating the total value of assets, one can determine their net worth.

Liabilities

Liabilities encompass the debts and obligations that an individual owes. This can include credit card debt, mortgages, student loans, car loans, and any other outstanding debts. Similar to assets, liabilities are also listed in the personal financial statement, giving a clear picture of one’s overall financial obligations.

Income and Expenses

The personal financial statement also includes an individual’s income and expenses. Income refers to all sources of money inflow, such as salary, rental income, investments, or any other forms of income. Expenses, on the other hand, encompass all the money outflows, including rent/mortgage payments, utilities, groceries, transportation costs, and other personal expenses. By analyzing this section, one can assess their cash flow and determine if they are living within their means.

Uses of Personal Financial Statements:

• Assessing net worth: By calculating the total value of assets and subtracting liabilities, one can determine their net worth.
• Evaluating financial health: Personal financial statements provide a holistic view of an individual’s financial health, helping identify areas for improvement.
• Applying for loans: Lenders often require personal financial statements when assessing an individual’s creditworthiness.
• Planning for the future: These statements serve as a foundation for setting financial goals and creating a budget.

Example of a personal financial statement:

Let’s take a look at a simple example of a personal financial statement:

Personal Financial Statement of John Doe

• Cash: $10,000
• Savings Account: $20,000
• Investments: $50,000
• Real Estate: $150,000
• Total Assets: $230,000
• Mortgage: $100,000
• Student Loans: $20,000
• Credit Card Debt: $5,000
• Total Liabilities: $125,000
• Salary: $60,000
• Rental Income: $12,000
• Total Income: $72,000
• Monthly Rent/Mortgage: $1,500
• Utilities: $200
• Groceries: $400
• Transportation: $300
• Total Expenses: $2,400

In this example, John Doe’s net worth is calculated by subtracting his liabilities ($125,000) from his assets ($230,000), resulting in a net worth of $105,000. His monthly cash flow can also be determined by subtracting expenses ($2,400) from income ($6,000), resulting in a positive cash flow of $3,600.

Personal financial statements are crucial for managing your finances effectively. By regularly updating and analyzing your personal financial statement, you can gain valuable insights into your financial standing and make informed decisions to achieve your financial goals. Whether you’re applying for a loan, evaluating your financial health, or simply aiming to improve your financial well-being, personal financial statements are an essential tool in your financial toolkit.

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How to Create your Own Personal Financial Statement—and Why You Want One

A personal financial statement gives you a clear idea of how you’re doing financially at any point in time. it's also a great tool to bring with you when applying for a loan..

Before you start any journey, you need to know where you are. That’s exactly what a Personal Financial Statement is for—it’s a snapshot of your personal financial position at a specific point in time. A step up from a spending plan, it lists your assets (what you own), your liabilities (what you owe) and your net worth (your liabilities subtracted from your assets). Understanding where you are now means you can set future goals and create a plan to get you there. A personal financial statement can also be a great tool when you’re ready to apply for a loan or mortgage.

First, list all of your assets which include (but aren’t limited to):

Your cash: The total balance of your checking accounts, savings accounts and any cash on hand.

Your retirement accounts: Include your 401k and your IRA, if you have them.

Value of significant assets: These are your bigger assets and usually include items like a car, real estate, life insurance policies, material property, and jewelry. Some item values may be variable, so be sure to check in and update those numbers from time to time.

Real Estate: Any piece of real estate or 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 your beneficiaries, insurance company details, and the face amount and cash surrender value of each policy.

Accounts and notes receivable: "They Owe You’s"—any debts or payments that are personally owed to you.

Then, add up the liabilities:

Unpaid taxes: Back taxes, not estimates.

Total real estate mortgage owed, if applicable.

Money you owe institutions: List money you owe to any institution that loaned money to you, such as personal or student loans.

All unpaid accounts: Create an itemized list of open credit card balances or other unpaid accounts. Be sure to list the amount owed and interest impacts.

Unpaid installment accounts: This item will have two lists: one for auto payments and one for any other payments made in installments—but NOT mortgage payments as they should be listed separately.

Life insurance loan, if you have one.

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: List the names and addresses of people and institutions 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.

Final math time: Your Assets - Your Liabilities = Your Net Worth

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Understanding Personal Financial Statements: A Comprehensive Guide

Table of content, what’s in this guide, personal balance sheet, how to create a personal balance sheet, calculating and interpreting your net worth, pros of creating a personal balance sheet, personal balance sheet limitations, pro tips on creating and maintaining a personal balance sheet, personal cash flow statement, how to create a personal cash flow statement, calculating and interpreting your net cash flow, pros of creating a personal cash flow statement, personal cash flow statement limitations, pro tips on creating and maintaining a personal cash flow statement, personal balance sheet case study, personal cash flow statement case study, grab your free personal financial statement template here, the bottom line.

Financial literacy isn’t just a skill; it’s a necessity in our complex modern economy. Our financial landscape is filled with many challenges—from managing debt and investments to planning for retirement. A personal financial statement is one key financial document that makes navigating these challenges easy.

Personal financial statements, which comprise a balance sheet and cash flow statement, provide a snapshot of your financial health, allowing you to evaluate your current financial condition, track changes over time, and plan for the future. Imagine seeing, at a glance, areas where you can reduce spending, if your net worth is increasing or decreasing, or if you are on track to meet your financial goals.

That’s the kind of clarity these statements provide. They don’t just contain numbers; they provide insights into your financial health, facilitating better decisions and effective long-term planning. For example, a cash flow statement can reveal if you are spending too much on non-essential items, while a balance sheet can show if your debt is becoming unmanageable.

Additionally, analyzing these statements together provides a broad view of your financial situation, helping you identify potential issues before they become significant problems. For instance, if your cash flow statement shows a consistent surplus, but your balance sheet reveals increasing debt, that might be a sign that you are not using your surplus efficiently to pay down debt.

In this guide, we’ll walk you through the two common types of personal financial statements: the personal balance sheet and the personal cash flow statement. We’ll explain each statement, their typical line items, the benefits of creating them, and their limitations.

Finally, we’ll share some pro tips on creating and maintaining each statement, and we’ll examine two case studies that illustrate how each statement can help individuals make better financial choices. At the end of the guide, you will be able to download a free template to get you started on monitoring your finances.

Let’s dive right in.

In a hurry and can’t read this guide in one go? Download the free PDF version to read whenever you have the chance!

Download Link:  Understanding Personal Financial Statements: A Comprehensive Guide

A personal balance sheet provides a snapshot of your financial position at a specific period, typically a month or a year. It outlines what you own (assets), what you owe (liabilities), and the difference between the two, known as your net worth. Assets include your house, car, investments, and savings, while liabilities encompass debts such as your mortgage, car loan, and credit card balances.

For instance, say your assets include a $350,000 house, a $30,000 car, $80,000 in investments, $30,000 in savings, and $10,000 in other assets, totaling $500,000. On the other hand, your liabilities include a $150,000 mortgage, $20,000 car loan, $10,000 credit card debt, $15,000 student loan, and $5,000 in other debts totaling $200,000. In this scenario, your net worth would be $500,000 (Total Assets) – $200,000 (Total Liabilities) = $300,000.

Understanding, creating, and maintaining a personal balance sheet helps you make informed decisions about investments, loans, and other financial matters. For example, by knowing your net worth, you can determine how much debt you can afford for a new home or car, how much you can reasonably invest, or whether you need to focus on paying down existing debt.

A personal balance sheet consists of two major categories: assets and liabilities. You can further divide these categories into subcategories that outline what you own and owe. Let’s briefly examine the typical structure of a personal balance sheet.

“Assets” is the first section on a personal balance sheet, and it covers everything you own that has a monetary value. These include tangible items like your home, car, and personal belongings, as well as intangible items like investments and savings accounts. Essentially, anything you could sell or cash in for money is considered an asset.

Assets are typically categorized into two groups: liquid and non-liquid assets. Let’s briefly examine the types of assets that fall under each group.

Liqui d Assets

“Liquid Assets” is the first category under the “Assets” section. It includes all assets that can be quickly and easily converted into cash without losing much value. Such assets include the following: 

• Cash and Cash Equivalents: This subcategory accounts for physical cash, checking accounts, savings accounts, certificates of deposit, and money market accounts, which are investments easily convertible to cash, making them as liquid as cash.
• Liquid Investments: This subcategory covers stocks, bonds, mutual funds, exchange-traded funds, and other liquid investment assets. You can convert these assets to cash relatively quickly without losing much value.

Non-Liq uid Assets

“Non-Liquid Assets” is the second category under the “Assets” section. This subcategory covers all assets that cannot be easily converted into cash or would lose value in the process. Such assets include the following:

• Retirement Accounts: This subcategory includes all forms of retirement funds you have. While the assets within a retirement account (like a 401(k) or an IRA) may be liquid, there are often penalties and tax consequences for withdrawing funds before a certain age. This is why it is usually classified as a non-liquid asset.
• Real Estate: This subcategory covers the market value of your home, rental properties, or any other real estate properties you own.
• Personal Property:   This subcategory includes the value of tangible assets such as cars, jewelry, furniture, electronics, collectibles, and other personal belongings. Note that these items should be valued at what they could be sold for now, not what was initially paid for them, as the value of many items depreciates over time, and overvaluing your assets can result in an inflated net worth. 
• Business Ownership: If you own a business, the value of your ownership stake is an asset and should be recorded under this subcategory.
• Other Assets: This subcategory accounts for any other assets not included in the preceding subcategories, such as loans you have given to others, tax refunds expected, etc.

Liabilities

“Liabilities” is the second section on your personal balance sheet, and it represents all debts and financial obligations. These can include various forms of debt, such as mortgages, car loans, credit card balances, and personal loans. Essentially, anything you need to pay back to others, whether to a bank, a credit card company, or a friend, is considered a liability.

Just as with assets, liabilities are also usually categorized into two groups: short-term and long-term liabilities. Let’s briefly examine the types of liabilities that fall under each group.

Shor t-Term Liabilities

“Short-Term Liabilities” is the first category under the “Liabilities” section. It includes all debts that are due within a year. Such liabilities include the following:

• Credit Card Balances: This subcategory highlights all you owe to credit card companies.
• Utility Bills: This subcategory covers all your utility bills, such as electricity, water, gas, and internet.
• Medical Bills: This subcategory includes any outstanding bills you owe for medical services or treatments. This can include doctor’s visits, hospital stays, and prescription medications. 
• Personal Loans: This subcategory accounts for any loan you take out for personal reasons, such as to cover unexpected expenses or to consolidate debt, and are due within a year.
• Payday Loans: This subcategory covers all short-term loans typically due on your next payday. 
• Overdrafts: This subcategory highlights the amount by which withdrawals from your bank account exceed the available balance.
• Taxes Due: This subcategory includes everything you owe to the government in taxes. This can include income, property, and any other taxes due within a year.
• Other Short-Term Liabilities: This subcategory accounts for every other bill or money you owe and is due within a year, such as insurance premiums, subscription services, gym memberships, and contingent liabilities, which are potential liabilities that depend on a future event.

Long-Term Liabil ities

“Long-Term Liabilities” is the second category under the “Liabilities” section. It includes all debts that are due in more than a year. Such liabilities include the following:

• Mortgage: This subcategory covers every mortgage you’ve taken on your home. It is typically the most significant liability for most people and is paid off over many years, often 15 to 30 years.
• Auto Loan: This subcategory includes any car loans you’ve taken out. These loans are typically paid off over a period of 3 to 7 years.
• Student Loans: This subcategory highlights any student loans you’ve taken out, which typically have a 10- to 30-year repayment period.
• Personal Loans: This subcategory accounts for any loan you take out for personal reasons, such as to cover unexpected expenses or to consolidate debt, and are due after a year.
• Pension Liabilities: This subcategory spotlights the amount you owe to your pension plan if you have borrowed against it.
• Long-Term Lease Obligations: This subcategory includes the amount you owe on any long-term lease, such as a car or equipment lease.
• Other Long-Term Liabilities: This subcategory covers any other long-term obligations that do not fit the preceding categories, such as a lawsuit settlement being paid off over time.

“Net Worth” is the final figure on a personal balance sheet. This figure is a clear indicator of your financial health, and you can calculate it using the following formula:

• Net Worth = Total Assets – Total Liabilities

For instance, let’s assume you own a house valued at $350,000, have a car worth $20,000, a retirement account with $50,000, and a savings account with $10,000, putting your total assets at $430,000. Let’s further assume you have a mortgage balance of $200,000 and a car loan of $15,000, putting your total liabilities at $215,000. In this scenario, your net worth would be:

• Net Worth = $430,000 (Total Assets) – $215,000 (Total Liabilities) = $215,000

This positive net worth of $215,000 implies that you own more than you owe, which is the ideal financial position to be in. Suppose your liabilities had exceeded your assets in the preceding scenario. In that case, you’d have a negative net worth, meaning you owe more than you own. 

Your net worth is a crucial measure of your financial stability. A high positive net worth implies that you are in a strong financial position and have effectively managed your income, savings, investments, and debts. A negative net worth, on the other hand, signals the need to reevaluate your financial habits to reduce debts and increase assets to avoid financial insolvency.

Understanding your financial situation is crucial for making informed decisions about your future. A personal balance sheet is a valuable tool for gaining this understanding. Here are some key benefits of creating and maintaining this financial statement:

Increased Financial Awareness

Regularly creating and reviewing your balance sheet increases your awareness of your financial situation. This heightened awareness can lead to better financial decisions, such as avoiding unnecessary debt and expenses, making better investment choices, and being more disciplined with savings.

For instance, if you notice that a large portion of your income is spent on dining out and entertainment, this awareness could lead you to make more disciplined spending choices, such as cooking at home or choosing free entertainment options.

Moreover, understanding your financial situation can also lead to psychological benefits. For example, knowing that you have a manageable level of debt and a solid savings plan reduces financial anxiety and increases confidence in your ability to achieve your financial goals. Additionally, this awareness fosters a sense of control over your finances, encourages a more disciplined approach to spending and saving, and promotes a more positive and proactive outlook towards your financial future.

Snapshot of Financial Health

A balance sheet provides a quick, overall view of your financial health by showing your assets and liabilities at a glance, making it easier to identify financial strengths and weaknesses. For example, if your balance sheet reveals that your credit card debt is more than 50% of your total assets, it’s a clear sign that you need to focus on debt reduction. Ignoring this signal could lead to escalating debt, higher interest payments, and a lower credit score.

Conversely, if your balance sheet shows that your assets are three times greater than your liabilities, that implies positive financial strength. You could leverage this strength by investing in higher-yield assets or taking on manageable debt to invest in opportunities with a high return on investment.

However, it is crucial to approach this cautiously and consider the potential risks involved. Do thorough research or consult a financial advisor before making significant financial decisions.

Wealth Tracking

Creating and updating your personal balance sheet regularly helps you monitor your wealth over time. This ongoing tracking lets you see if you’re progressing toward your financial goals and pinpoint areas needing improvement.

For example, if you observe that the value of your stock portfolio has decreased significantly over the past year, this might indicate that your investment strategy needs to be reevaluated. Failing to take action could result in further losses, considerably reducing your overall wealth.

It’s important to factor in economic variables like inflation when assessing your financial growth. A nominal increase in wealth doesn’t always equate to an actual increase in financial well-being. For instance, a 3% increase in your wealth over the past year may seem positive, but if the inflation rate is 5%, your real wealth has actually decreased by 2%. It’s great to see your wealth grow year after year, but it’s essential to ask yourself: does the growth rate outpace or at least keep up with inflation?

Financial Planning

A personal balance sheet is an effective tool for planning financial goals. By knowing your net worth, you can devise better strategies for saving, investing, or debt repayment, helping you make informed decisions to achieve your financial goals. Let’s say you notice that your net worth is decreasing; it might be time to cut expenses, pay down debt, or reconsider large purchases or investments.

For example, if your net worth has decreased by 10% over the past year, you might decide to sell non-essential assets, reduce discretionary spending, or refinance your debt to lower interest rates. Doing a mix of the preceding will help you increase your net worth.

Additionally, a personal balance sheet can help you create a clear and detailed financial plan. For example, by knowing your net worth, you can set realistic savings and investment goals for the next year.

Remember, it is necessary to regularly revisit and adjust your financial plan and goals as your financial situation changes. Factors that may necessitate a change in your plan include a change in income, unexpected expenses, or changes in your financial goals. For example, if you receive a promotion and a salary increase, you may want to adjust your savings and investment goals accordingly. Similarly, if you incur unexpected medical expenses, you may need to adjust your budget and debt repayment plan .

Advanced Financial Analytics

Creating and maintaining a personal balance sheet makes it easier to calculate and track important personal financial ratios like the debt-to-asset ratio and capitalization ratio. These ratios are crucial for assessing your financial health and stability. For example, the debt-to-asset ratio helps you understand how much of your assets are financed by debt. In contrast, the capitalization ratio helps you understand your financial structure by showing the proportion of debt owed relative to equity owned.

While a personal balance sheet is an indispensable tool for understanding your financial health, planning your financial future, and making informed financial decisions, it’s also important to recognize its limitations. Knowing them helps you better interpret the information your balance sheet provides and understand what additional steps you may need to take to neutralize each limitation. Here are some key limitations of a personal balance sheet:

Doesn't Show Cash Flow

A balance sheet provides a snapshot of your financial situation at a specific point in time but doesn’t show cash flow. A cash flow statement provides a dynamic view of how money is earned and spent over a specific period. This can highlight issues not immediately apparent from the balance sheet, such as a negative cash flow despite a positive net worth. For example, someone might have a high net worth and still have cash flow problems because most of their assets are illiquid (e.g., real estate, long-term investments, etc.). Creating and maintaining a balance sheet and a cash flow statement is a great way to overcome this limitation.

Fluctuating Values

The values of assets and liabilities can fluctuate over time, making the balance sheet a snapshot accurate only at the moment it’s prepared. And this variability can significantly impact your financial planning and decision-making. For example, if you intend to sell some of your stocks, the value of those stocks when preparing the balance sheet may differ from the value at the time of the sale. This discrepancy could result in overestimating or underestimating the sale proceeds in your budget, each having distinct repercussions.

Consider a scenario where you plan to use the sale proceeds to repay debt. If the actual proceeds are lower than anticipated, you may find yourself unable to cover the debt fully, leading to additional interest charges or penalties. For this reason, it’s crucial to update your balance sheet frequently and exercise caution when making financial decisions based on it.

Subjective Asset Valuation

Some assets, like jewelry, art, or antiques, can be difficult to value accurately, making it challenging to create an accurate personal balance sheet. For instance, valuing a piece of art at $12,000 when it’s actually worth $5,000 will inflate your net worth and potentially mislead your financial planning. It’s advisable to consult a professional appraiser for items of significant value to mitigate this limitation.

Dependency on Accurate Data

The effectiveness of a balance sheet depends on the accuracy of the data inputted. Even minor errors in asset or liability values can lead to incorrect conclusions about your financial health. For example, an underestimation of debt by $1000 may seem inconsequential, but when interest is taken into account, the actual value of that debt could be significantly higher over time. This could lead to understating the time and money required to repay that debt.

Creating a personal balance sheet is crucial for anyone interested in managing their finances responsibly. However, the real benefit of a personal balance sheet lies not just in its creation but in regularly updating and using it wisely. Here are some pro tips to help you make the most of your personal balance sheet:

Start with Accurate Information

Gather all your financial documents, such as bank statements, mortgage statements, and credit card bills, before creating your balance sheet. Doing so will help ensure you don’t miss any assets or liabilities.

Categorize Your Assets and Liabilities

Break down your assets and liabilities into categories such as liquid assets (cash, savings), non-liquid assets (real estate, investments), short-term liabilities (credit card debt, other debts due within a year), and long-term liabilities (mortgage, student loans).

Consider Future Liabilities

Include expected future liabilities, such as a child’s college education, a planned home renovation, or future taxes, in your personal balance sheet. Doing so will help make your financial planning more accurate and effective.

For example, let’s say you’re planning for your child’s college education. You can estimate this future liability by researching the current tuition fees of the college your child might attend and its historical growth rate.

Suppose the current tuition fee is $30,000 per year, and historically, the tuition fee has increased by 5% annually. You can estimate that in 10 years, the tuition fee would be approximately $48,890 per year ($30,000 × (1 + 0.05)^10). This estimation will help you plan and save accordingly.

Use Conservative Values

Be conservative when estimating the value of your assets. This means using the lower end of an estimated value range and being cautious when including assets whose value is highly uncertain. Overestimating the value of your assets provides a false sense of financial security and leaves you unprepared for unexpected financial downturns.

Be Thorough

Being conservative matters a lot in creating an accurate personal statement, but so does being thorough. Ensure you include all your assets and liabilities, even if they seem insignificant. Small amounts can add up over time and may affect your financial health more than you realize. Assets and liabilities commonly overlooked include:

• Digital assets like cryptocurrency;
• Intellectual property (e.g., copyrighted material, patents);
• Collectibles (e.g., rare coins, stamps); and 
• Prepaid expenses (e.g., prepaid insurance, prepaid rent).

Liabilities: 

• Outstanding medical bills;
• Unpaid taxes;
• Personal loans from friends or family; and 
• Any accrued interest on existing loans.

Update Regularly

Update your balance sheet at least every quarter or when there is a significant change in your assets or liabilities, such as receiving an inheritance, buying a house, and paying off or incurring a debt. Recording changes in your assets and liabilities is the best way to spot trends you would have otherwise missed. Moreover, doing so helps make your balance sheet more accurate.

Review Past Balance Sheets

While you should update your personal balance sheet at least four times a year, it’s a good idea to monitor it regularly. Set a schedule for reviewing your personal balance sheet, such as monthly or quarterly. Regularly reviewing past balance sheets can help you identify trends, understand how your financial situation has changed, and make more informed decisions about the future.

Use Alongside A Cash Flow Statement

To better understand your financial health, use your personal balance sheet together with a personal cash flow statement. While the balance sheet provides a snapshot of your financial health at a specific point in time, the cash flow statement shows how you earned your money or spent it over a specific period. Using both financial statements will help you identify trends, gain more insights, and make more informed financial decisions.

Take Advantage of Tools and Templates

There are various tools and templates available online, such as Microsoft Excel templates, personal finance apps, or online budgeting tools that offer personal balance sheet templates. You can start with a basic template from Microsoft Excel and customize it to include categories specific to your financial situation, like adding a section for digital assets or future liabilities.

Reflect and Act

After creating your balance sheet, reflect on your financial situation. Are you meeting your financial goals? Do you need to adjust your spending or saving habits? Use your balance sheet as a tool for making informed financial decisions.

Seek Professional Help

If you are dealing with a complex financial situation, such as managing investments across multiple platforms, dealing with significant debt, or planning for retirement, it might be beneficial to seek advice from a certified financial planner or wealth manager. A financial planner can help you create a comprehensive financial plan, while a wealth manager can help you manage your investments and optimize for tax efficiency.

A personal cash flow statement tracks how much cash you’re earning and where it’s being spent over a specific period, typically a month or a year. This statement provides valuable insights into how you are managing your cash resources, enabling you to understand your spending patterns and make better financial decisions.

A personal cash flow statement records cash inflows and outflows during a specific period. Think of it as a story of your personal finances from a cash perspective, showing you where your money came from (inflows), where it went (outflows), and the net difference between the two. If your inflows exceed your outflows, then you’ll have a positive cash flow. Conversely, if your outflows exceed your inflows, then you’ll have a negative cash flow.

For example, let’s say your monthly cash inflows (salary, freelance work, etc.) are $5,000, and cash outflows (rent, utilities, groceries, etc.) amount to $3,200. In this scenario, your personal cash flow statement for that month would show a surplus of $1800, money you can put towards savings, investment, or other financial goals.

A personal cash flow statement typically consists of two main sections: cash inflows and cash outflows, which can be further divided into various categories and subcategories.

When creating a personal cash flow statement, it is essential to break down your cash inflows and outflows into different line items that track your income sources and expenditures. This detailed breakdown provides a clearer view of your financial situation, helping you identify potential areas for savings or producing additional income.

Let’s briefly examine the typical structure of a personal cash flow statement.

Cash Inflows

“Cash inflows” is the first section on a personal cash flow statement; it covers all the money that comes into your possession during a specific period, usually monthly or yearly. These inflows can include your salary, bonuses, dividends from investments, rental income, money received from selling assets, gifts, or any other sources of income. Essentially, any money you receive or earn is a cash inflow.

Cash Inflows are typically grouped into three categories: earned income, passive income, and other income. Let’s briefly examine the types of cash inflows that fall under each category.

Earned Income

“Earned Income” is the first category under the “Cash Inflows” category. It covers any money you earn by providing a service, working a job, or running a business. 

Common types of income under this category include the following:

• Salary/Wages: This line item covers your primary income source, typically earned through employment or self-employment. This is generally the largest portion of your income.
• Bonus/Commissions: This line item includes any additional income from your primary employment beyond your salary or wages.
• Business Income: If you have a side business or gig, such as freelance work or a small online business, include the gross income (i.e., income after business-related expenses are deducted) under this subcategory. For example, if you have a freelance business and earn $10,000 monthly but have $2,000 in business-related expenses (such as advertising, supplies, etc.), you would record $8,000 ($10,000 – $2,000) under this subcategory.

Passiv e Income

“Passive Income” is the second category under the “Cash Inflows” section, and it highlights any cash you earn without active, ongoing effort after the initial groundwork or setup. This category typically contains the following subcategories:

• Investment Income: This subcategory accounts for stock dividends, bond interest payments, rental property income, or any other income you earn from your investments. For example, if you own 100 shares in a company that pays $1 in dividends per share quarterly, you would receive $100 every quarter. This $100 would be recorded under this subcategory.
• Non-Investment Passive Income: This subcategory covers any income from passive ventures or endeavors where capital investment isn’t the primary driver, such as royalties from intellectual property and ad revenue from websites, blogs, or YouTube channels.

Oth er Income

“Other Income” is the third category under the “Cash Inflows” section, and it includes any other money you receive that doesn’t fall under the categories of earned or passive income. Typical subcategories under this category include the following:

• Asset Sales: If you’ve sold any assets like cars, furniture, investments, etc., the cash generated from these sales would be recorded under this subcategory. For example, if you sold a car for $10,000, this amount would be recorded under the “Sale of Assets” subcategory. Similarly, if you sold shares of stock for a total of $5,000, this amount would also be recorded here.
• Miscellaneous Income: This subcategory tracks all miscellaneous income sources like alimony, child support, social security income, lottery winnings, gifts, and inheritance. For example, if you received $500 as a reimbursement from your employer for work-related expenses, $200 as a refund from a returned purchase, and $50 as cashback from your credit card, you would record these amounts under this subcategory.

Cash Outflows

“Cash outflows” is the second section on a personal cash flow statement, and it represents all the money you spend during a specified period, typically monthly or yearly. These outflows include expenses such as rent or mortgage payments, utility bills, groceries, transportation costs, loan repayments, and entertainment. 

Essentially, any money you spend is a cash outflow, and unlike cash inflows, which increase your available funds, cash outflows reduce them. Let’s briefly examine the types of cash outflows that fall under this section.

Ess ential Expenses

“Essential Expenses” is the first category under the “Cash Outflows” section. It tracks all necessary costs you incur to maintain your basic standard of living. In other words, this category covers every cash you spend on needs rather than wants. Another way to think about essential expenses is that they are cash you need to spend to survive and function in society. Common types of expenses under this category include the following:

• Housing: This subcategory covers your mortgage or rent payments, maintenance, property tax, and renters’ insurance, among other housing-related costs. If you own a home, you will have property tax expenses; if you rent, you may have renters’ insurance. Accounting for these variations makes your cash outflows more accurate.
• Utilities: This subcategory accounts for basic services vital to everyday living, such as electricity, gas, water, sewer, trash, internet service, and phone bills.
• Food: This subcategory typically includes groceries and other essential food-related expenses, like school lunches for children or meals for elderly family members.
• Transportation: This subcategory highlights car payments, gas, insurance, maintenance, public transit, ride-share costs, vehicle registration, tolls, parking, and all other transportation-related expenses. 
• Healthcare: This subcategory covers health insurance premiums, out-of-pocket medical costs, prescriptions, alternative therapies, health supplements, and all other healthcare-related expenses. 
• Education: This subcategory includes tuition, textbooks, online courses, professional development, workshops, seminars, conferences, school supplies for kids, tutoring, educational software, and other education-related expenses. 
• Essential Personal Care: This subcategory includes clothing, personal grooming, dental care, cosmetics, skincare, and other personal care-related expenses. 
• Child Care/Support: This subcategory covers child care costs, school fees, child support payments, and other related expenses. 
• Insurance: This subcategory spotlights life insurance, disability insurance, and other insurance-related expenses. 
• Taxes Paid: This subcategory covers any additional tax payments you may make, such as estimated tax payments, that are not automatically deducted from your income. 
• Miscellaneous Essential Expenses: This subcategory covers essential expenses that don’t fit into the preceding subcategories. These include prescription glasses or contacts, special dietary needs, home safety equipment, professional licensing or certification fees, alimony payments, bank fees, etc.

Non-Essential Expenses

“Non-Essential Expenses” is the second category under the “Cash Outflows” section. All expenses that aren’t necessary for your survival or basic comfort but contribute to your lifestyle and happiness fall under this category. These expenses are typically optional and can be reduced or eliminated if necessary. Common types of non-essential expenses under this category include the following:

• Dining and Entertainment: This subcategory covers cash spent on meals, snacks, and beverages from restaurants, cafes, takeout, and delivery services.
• Luxuries: This subcategory includes any cash spent on things like jewelry, high-end electronics, designer clothing, etc.
• Non-Essential Personal Care: This subcategory accounts for expenses that are not necessary for maintaining basic health and hygiene. These expenses include spa and massage treatments, luxury cosmetics and skincare, tanning, etc.
• Leisure and Entertainment: This subcategory includes a wide range of expenses like gym memberships, subscriptions (like Netflix, Spotify, club memberships, etc.), hobbies, vacations, cultural events, theater, concerts, etc. 
• Miscellaneous Non-Essential Expenses: This subcategory accounts for all the expenses that are not crucial for your survival, basic comfort, or regular lifestyle but don’t fit into any existing non-essential expenses subcategories. These include gifts, donations, decor, special occasions, pet-related expenses, books, magazines, etc.

Non-Recurring Expenses

“Non-Recurring Expenses” is the third category under the “Cash Outflows” section. It accounts for essential or non-essential expenses that don’t occur regularly or predictably and don’t fit under preceding categories and subcategories. For example, acquisition of assets, legal fees, or any unexpected expenses like family emergencies. Common types of non-recurring expenses under this category include the following:

• Assets Acquisition: If you’ve bought assets like property, vehicles, or other large purchases, the cash used for these acquisitions would be recorded under this subcategory. 
• Property Loss: Expenses related to replacing lost or stolen property not covered by insurance, such as replacing stolen electronics, furniture, or other valuable items, can be recorded here.
• Family Emergencies: Expenses related to unexpected family emergencies, such as travel costs for a family member’s funeral or medical emergency, can be recorded here.

Debt Payments

“Debt Payments” is the fourth category under the “Cash Outflows” section. Any money used to repay the principal and interest on your debts is recorded under this category.

“Savings” is the fifth category under the “Cash Outflows” section. It tracks whatever income is set aside for future use, such as an emergency fund, retirement, or specific financial goals. Common line items under this category include goal-specific savings, emergency funds, retirement accounts, etc.

Investments

“Investments” is the sixth category under the “Cash Outflows” section. It covers any money used to purchase assets with the expectation that they will generate a return in the future. Line items commonly recorded under this category include stocks, bonds, mutual funds, real estate, start-up investments, etc.

Calculating your net cash flow is the final step in creating your personal cash flow statement. Net cash flow is the figure you get after subtracting your total cash outflows from your total cash inflows. It’s a vital indicator of your financial liquidity. You can calculate this figure using the following formula: 

• Net Cash Flow = Total Cash Inflows – Total Cash Outflows

To illustrate how to calculate net cash flow, let’s consider the following example. Assume your total cash inflows, which include your salary of $4,000, investment income of $500, and other income sources of $500, come to $5,000 per month. And your total cash outflows, encompassing costs such as housing ($1,500), food ($500), transportation ($400), personal expenses ($400), and debt repayments ($900), sum up to $3,700 per month. In this case, your net cash flow would be:

• Net Cash Flow = $5,000 (Inflows) – $3,700 (Outflows) = $1,300

Your net cash flow is $1,300 in this scenario, indicating a positive cash flow. This means you earn more than you spend, leaving you with excess cash that can be used for savings, investments, or reducing debt.

Interpreting your net cash flow involves understanding what the number means for your financial health. A positive net cash flow indicates a healthy financial situation where you live within your means and have leftover income to allocate towards savings, investments, or debt repayments. This is generally an ideal financial position to be in.

Conversely, if your net cash flow is negative, you spend more than you earn. A negative net cash flow could be due to one-time large expenses or indicate a pattern of overspending. If it’s the former, this may not pose a long-term issue, but if it’s the latter, you may need to reassess your budget and spending habits. Creating a detailed budget, tracking your expenses, and identifying areas where you can cut back or increase your income can help turn a negative net cash flow into a positive one.

To summarize, your net cash flow reveals whether you’re living within your means or overspending. It can serve as a wake-up call to adjust your spending habits or as a green light that you’re on track with your financial plans.

Creating a personal cash flow statement is more than just a financial exercise; it can help you develop a roadmap to your financial freedom. Whether you’re struggling with budgeting, debt, or planning for the future, a personal cash flow statement can provide invaluable insights. Here are some of the key benefits you unlock when you create a personal cash flow statement:

Regularly updating and reviewing your personal cash flow statement not only helps you keep tabs on your financial situation but also increases your awareness of your spending habits. For example, regularly reviewing your personal cash flow statement might help you notice that you’re consistently spending $100 monthly on takeout. Noting this pattern is the first step toward deciding whether this is an area where you can and should cut back.

Interestingly, as you regularly review your personal cash statement, you will become more conscious of your spending decisions in real time, not just when you review your statement.

Enhanced Budgeting

A personal cash flow statement can help you create a more detailed and practical budget by identifying exactly where your money is going. And with a comprehensive cash flow statement, you can easily spot areas where you may need to cut back on your expenses or allocate more funds.

For instance, let’s say you notice that your grocery bill has increased significantly over the last six months. You can delve deeper to understand why and adjust your budget or behavior accordingly. You may decide to allocate more funds to your grocery budget for the following months or find ways to reduce grocery expenses. This real-time feedback loop is invaluable for effective budget management.

Set Achievable Financial Goals

By highlighting your disposable income or the money left over after all cash outflows have been accounted for, a personal cash flow statement can help you set realistic financial goals, both short-term and long-term. This way, you’re not just aiming mindlessly but setting achievable targets.

For instance, if your cash flow statement reveals that you have $300 left each month after essential expenses, setting a goal to save $500 a month would be unrealistic and could leave you frustrated. On the other hand, a realistic goal based on your actual disposable income, such as saving 20% ($60) monthly, can improve your financial self-esteem and encourage you to maintain or improve your financial habits.

Evidently, setting achievable goals not only improves your financial self-esteem but also leads to a sense of accomplishment that motivates you to set and achieve more financial goals.

Effective Debt Management

Effective debt management is critical to eliminating liabilities within the shortest possible time to avoid unnecessary interest payments. A well-structured cash flow statement can reveal non-essential expenses you could cut back on or eliminate to free up funds to fast-track your debt repayment.

Consider this scenario: After creating a monthly cash flow statement, you notice spending $200 on gourmet coffee and $150 on streaming services. Making coffee at home and canceling a few subscriptions could free up $350 monthly or $4,200 annually!

When redirected to your credit card debt, this surplus can significantly reduce your outstanding balance and the interest you’d otherwise accrue, fast-tracking your path to being debt-free. Similar savings can be spotted in areas like dining out, unused gym memberships, or impulse online purchases.

Remember, staying disciplined with your repayment strategy is vital to managing and eliminating debt. Timely repayments free you from debt faster and improve your credit score, opening doors for better financial opportunities in the future.

Deeper Financial Analysis

The insights a personal cash flow statement provides are not limited to tracking income and expenses. By using your cash flow data, you can easily calculate key personal financial ratios. An example of these ratios is the debt-to-income ratio, calculated by dividing total monthly debt payments by total income.

Personal financial ratios are more than just numbers. Despite popular misconceptions, they are performance indicators that can help anyone gauge their financial health and make informed decisions. For example, lenders consider a debt-to-income ratio higher than 0.36 as a red flag. Your ratio exceeding this threshold may result in higher interest rates on loans or make it challenging to secure credit. In such a situation, it’s prudent, therefore, to reduce existing debt before attempting to take on additional debt.

By creating and regularly updating your cash flow statement, you can actively monitor these ratios, spot trends, and make adjustments to reach financial goals more effectively.

While a personal cash flow statement is invaluable for understanding your finances, it has limitations, which, when recognized, can lead to a more accurate interpretation of your data. Here are a few limitations to remember when analyzing a personal cash flow statement.

Doesn't Reflect Future Commitments

A cash flow statement primarily captures present transactions and doesn’t account for upcoming financial obligations like loan repayments or planned investments. For instance, if you’ve recently agreed to a car lease or plan to enroll in a long-term course next year, these commitments won’t appear in your current statement, potentially underestimating future expenses. You can neutralize this limitation by creating a forward-looking budget alongside your cash flow statement.

Doesn't Reflect Total Wealth

A cash flow statement won’t reflect the value of assets such as your home, car, investments, or savings, thus not fully representing your wealth. A balance sheet, on the other hand, provides a snapshot of your assets, liabilities, and net worth, offering a comprehensive view of your overall wealth. As such, it’s important to use your cash flow statement together with a balance sheet to get a complete picture of your current financial health.

Potential for Missed Expenditures

It’s easy to overlook some expenses, especially smaller or infrequent ones, which can make your cash flow statement inaccurate. One way to mitigate this limitation is by meticulously tracking all cash outflows, no matter how small. You can do this by using an expense tracking app, keeping all receipts, or reviewing bank statements.

Provide a Snapshot of a Specific Period

A personal cash flow statement only provides a snapshot of your cash inflows and outflows for a specific period, typically a month or a year. It does not reflect changes in your financial situation over time. For instance, if you faced a significant medical expense in January and then maintained a strict budget for the next few months, a cash flow statement for April might not reflect the financial strain you experienced at the start of the year. To track your financial progress, you need to regularly update and review your cash flow statement and compare it with previous periods.

Understanding your cash flow is essential for managing your finances effectively. A personal cash flow statement enables you to identify patterns, plan for the future, and make informed financial decisions. However, to get the most out of your personal cash flow statement, you need to be diligent in its creation and usage. Here are some pro tips for creating and using a personal cash flow statement effectively:

Record Everything

Record all inflows and outflows, no matter how small, to make your cash flow as accurate as possible. Even minor discrepancies can lead to an inaccurate picture of your financial health. For example, small expenses like daily coffee or occasional parking fees are often overlooked. However, a $5 daily coffee adds up to $150 monthly and $1,825 yearly. Assuming your yearly expenses amount to $36,000, you underreport your expenses by ~5% every year.

Use Accurate Time Frames

Make sure the time frame for your cash flow statement matches the time frame for your budget and financial goals. A monthly cash flow statement is appropriate for most people because many expenses and income sources occur on a monthly basis. However, if you have significant irregular expenses or variable income, you may need to review and update your cash flow statement more frequently, such as weekly or bi-weekly.

Be Specific

When noting your expenses, avoid grouping them into overly broad categories to understand your spending patterns better. For example, instead of vaguely listing $150 for “utilities,” you could break it down: $50 for “electricity,” $40 for “water,” $30 for “internet,” and $30 for “gas.” Such granularity can reveal surprising spending habits, like unusually high water cost that prompts leak checks or water conservation efforts.

However, it’s also crucial not to overwhelm your cash flow statement with excessive detail. Excessive details can clutter your statement, making it harder to identify overall trends or patterns quickly. For example, instead of listing “Netflix,” “Hulu,” and “Disney+” separately, group them under “Streaming Services”. The goal is to find a categorization balance that ensures your cash flow statement remains streamlined yet insightful, setting the stage for well-informed financial decisions.

Distinguish Between Essential and Non-Essential Expenses

Distinguishing between essential and non-essential expenses helps you identify areas to cut costs. Essential expenses are the basic costs incurred to maintain a safe and healthy living standard; they cover the fundamental needs required to live and work in modern society. Such expenses include groceries, housing, healthcare, utilities, and transportation. On the other hand, non-essential expenses are costs that enhance your life but aren’t vital for your basic survival. Dining out, vacations, luxury shopping, streaming services, etc., are non-essential expenses.

Note that essential expenses can differ based on individual circumstances and lifestyles. For example, if you work from home, high-speed internet becomes a necessity, whereas someone without remote work might view it as a luxury. It’s essential to recognize that what’s necessary for one person might be a luxury for another. Tailor your cash flow statement to reflect your unique needs and priorities.

Plan for Emergencies

Always ensure that you maintain a financial buffer for emergencies and unexpected expenses. Aim to set aside at least 3-6 months’ worth of living expenses in an easily accessible account. This duration is often optimal as it provides adequate coverage for scenarios like unexpected job losses, sudden medical bills, or major home repairs.

Keep your emergency fund in a high-yield savings account, where your money remains readily accessible and earns interest. You might also consider diversifying your emergency fund by putting a portion in money market accounts or short-term certificates of deposit for potentially higher returns.

Review and Adjust Regularly

Your cash flow statement is a dynamic document that should be reviewed and updated regularly. Regular updates help you stay on top of your finances and make necessary adjustments promptly. Update your cash flow statement as regularly as possible. Monthly updates are standard, but you may want to update more infrequently if your inflows and outflows rarely change.

Identify Areas for Cost Reduction

Make it a habit to regularly review your cash flow statement to pinpoint areas where you can trim expenses. If, for instance, you notice a significant portion of your money goes into dining out, consider cooking at home more often to reduce costs. Similarly, evaluate monthly subscriptions to see if there are any you no longer utilize, or consider cheaper alternatives to recurring expenses, ensuring every dollar is spent wisely.

Identify Opportunities to Increase Income

Review your cash flow statement regularly to identify opportunities for increasing your income. This could include asking for a raise, starting a side hustle, or investing in income-generating assets. For instance, if you have a skill like graphic design, you could begin freelancing and taking on small projects in your free time. Alternatively, investing in income-generating assets like dividend stocks or real estate can also increase your income.

Set Realistic Goals

Setting achievable goals for savings, investments, and debt repayment is crucial. For example, if your monthly income is $3,000, setting a goal to save $1,500 monthly may be unrealistic after accounting for all other expenses. Always consider all your essential expenses before setting aside a savings goal.

Use Technology

Using a financial tracking app or software can help you keep track of expenses and minimize omissions. Many apps like Mint, YNAB, Spendee, and PocketGuard offer features that can help you track your expenses, set budgets, and monitor your investments. Look for an app that allows you to categorize your expenses, set alerts for overspending, and provide a visual representation of your financial health.

Pair With Balance Sheet

Your personal cash flow statement is one part of your financial profile. Pairing it with a balance sheet provides more accurate insights into your financial status, allowing you to identify areas of vulnerability, such as looming debts, and opportunities, like potential investments.

By tracking your monthly net cash flow statement from the cash flow statement and your net worth from the balance sheet, you can strategically plan for future investments, debt repayments, and savings. For instance, if your cash flow statement shows a consistent surplus each month, but your balance sheet reveals high-interest debt, it might be wise to allocate some surplus towards that debt reduction.

Feel free to seek assistance from a financial advisor or planner if creating and managing your cash flow statement seems overwhelming. While a financial advisor can be helpful for anyone, it is especially beneficial for those with more complex financial situations, such as multiple income streams, significant debts, or an extensive investment portfolio. For example, if you have $20,000 in credit card debt, a financial planner can help you develop a plan to pay it off within a realistic timeframe.

Meet Sarah, a 24-year-old recent graduate who has just started her first job as a graphic designer in a reputable advertising agency. Now, with a steady income and eager to start on the right financial footing, she has decided to create a personal balance sheet to gain insight into her financial health.

Sarah has some student loans, a personal loan she took for a family emergency, has been using a credit card for daily expenses, and is living in a rented apartment. Although she had saved some money from part-time jobs during college, she’s unsure how her assets measure up against her debts. She aims to clear her debts, invest more, and contribute more to her retirement fund.

After reading this comprehensive guide on personal financial statements, Sarah decided to create a personal balance sheet to understand her financial status clearly and develop a financial plan.

Creating the Personal Balance Sheet

Sarah sets aside a weekend to organize her financial documents, online accounts, and other financial information to compile a comprehensive list of her assets and liabilities. She then begins by listing all her assets and liabilities meticulously.

LIQUID ASSETS

• Checking Account: $3,200
• Savings Account: $5,500
• Total Liquid Assets: $9,000

NON-LIQUID ASSETS

• Retirement Account (401k): $1,000 (from her new job)
• Investment Portfolio (a diversified set of index funds): $2,700 
• Car: $10,000 (current market value)
• Total Non-Liquid Assets: $13,700
• Total Assets: $22,700

LIABILITIES

SHORT-TERM LIABILITIES

• Credit Card Debt (20.93% annual percentage rate): $2,500
• Utility Bills (monthly): $200
• Personal Loan from a Friend (to be repaid within a year): $1,000
• Total Short-Term Liabilities: $3,700

LONG-TERM LIABILITIES

• Student Loans (10-year loan term; 6% fixed interest rate): $25,000
• Car Loan (7-year loan term; 9% annual percentage rate): $8,000
• Total Long-Term Liabilities = $33,000
• Total Liabilities = $36,700
• Net Worth = -$14,000

Interpretation and Action

Upon analyzing her Personal Balance Sheet, Sarah finds herself with a negative net worth, largely because of her student and car loans. She decides to take the following actions:

• Credit Card Payoff: Prioritize paying off her credit card debt first, as it has the highest interest rate (20.93%), and then pay off the car loan next, since it has the second-highest interest rate (9%). To achieve this, she decided to allocate 60% more of her monthly disposable income towards paying off the credit card debt. 
• Student Loan: Since her student loan has a low single-digit interest rate, Sarah figures there’s no pressing need to rush clearing her student loan. Maintaining her current monthly payment is more financially prudent, especially since student loan interest payments are tax deductible. However, she also knows paying off the loan earlier can save her some interest payments. For that reason, she plans to increase her student loan payments if she gets a chance to do so.
• Emergency Savings: Sarah understands the importance of having an emergency fund. Hence, she decides to save 20% of her disposable income each month until she accumulates a year’s worth of living expenses.
• Retirement Planning: Continue contributing to her 401k to take advantage of her employer’s match and the power of compound interest. 
• Investing: Sarah decides to postpone increasing her investment allocation until she has paid off her credit card debt. She understands that it will be challenging to generate real investment returns, seeing as the interest rate on credit card debt exceeds her portfolio’s annualized return.
• Cash Flow Statement: Create a detailed personal cash flow statement to monitor her income and expenses. Doing so will help her identify expenses she can cut back on and allocate more funds toward her debt repayment and savings goals.

Benefits Sarah Gained from Creating a Personal Balance Sheet

• Increased Financial Awareness: By creating her personal balance sheet, Sarah became more aware of her financial situation, which helped her to make informed financial decisions. She decided to prioritize paying off her credit card debt, postpone increasing her investment allocation until her high-interest debts were paid off, and start building an emergency fund. This heightened awareness also reduced her anxiety about her finances and increased her confidence in achieving her financial goals.
• Snapshot of Financial Health: The balance sheet provided Sarah with an overall view of her financial status, revealing that her liabilities significantly exceeded her assets. Her negative net worth was a clear signal that she needed to focus on debt reduction and savings. Identifying this financial weakness allowed her to create a targeted plan to improve her financial health.
• Financial Progress Tracking: By regularly updating her personal balance sheet, Sarah can monitor her wealth over time and see if she is progressing toward her financial goals. For example, as she pays off her debts, she will see a reduction in her liabilities and an increase in her net worth.
• Financial Planning: Creating the personal balance sheet enabled Sarah to begin creating a financial plan. She was able to set realistic goals for saving and debt repayment, giving her a structured path forward. 
• Advanced Financial Analytics: Creating a personal balance sheet made it easier for Sarah to calculate and track important personal financial ratios. For example, she could calculate her debt-to-asset ratio and use this information to make informed decisions about debt repayment and borrowing.

Limitations Sarah Overcame

• Doesn’t Show Cash Flow: While the personal balance sheet provided a snapshot of her financial situation, it did not show her cash flow. Recognizing this limitation, Sarah decided to create a detailed personal cash flow statement to monitor her income and expenses. Doing so would help her identify areas where she could cut back and allocate more funds toward her debt repayment and savings goals.
• Fluctuating Values: Sarah understood that the values of assets and liabilities could fluctuate over time. To mitigate this limitation, she decided to update her balance sheet every quarter to ensure that it always reflected her current financial situation. 
• Dependency on Accurate Data: Any oversights or inaccuracies could paint an incomplete picture of Sarah’s financial status, potentially leading her to make ill-informed decisions. To overcome this limitation, she meticulously included every asset and liability, no matter how small, and validated the values by checking her bank statements, credit card statements, investment account statements, and other financial records. Additionally, she used financial management apps to automatically pull and consolidate data, further enhancing the accuracy of her balance sheet.
• Subjective Asset Valuation: Knowing that misvaluing her assets can make her balance sheet inaccurate, Sarah used the current market value for her car and checked the most recent statements for her savings and investment accounts.

Pro Tips Sarah Followed

• Regular Updates: Sarah set a reminder to update her Personal Balance Sheet every quarter to track her financial growth and to recalibrate her plans as needed.
• Be Thorough: Sarah included all her assets and liabilities, no matter how small, to ensure her balance sheet was comprehensive.
• Accurate Valuation: As mentioned earlier, Sarah made sure to use the current market value for her car and checked the most recent statements for her savings and investment accounts.

Creating a personal balance sheet was a transformative experience for Sarah. The exercise gave her the information and motivation she needed to take control of her financial future. It provided her with a clear and comprehensive view of her financial situation, enabling her to create a targeted plan to improve her financial health.

Before creating her balance sheet, Sarah often felt overwhelmed by the abstract notion of “net worth” and “financial health.” But after this exercise, these abstract worries solidified into tangible numbers and action points.

Though she started with a negative net worth, Sarah now has a roadmap for eliminating debts and increasing her assets. With a clear roadmap in place, she is now confident in her ability to manage her finances effectively and work towards a secure financial future. This is all thanks to the simple yet enlightening exercise of creating and maintaining her personal balance sheet.

Having already evaluated her net worth via her Personal Balance Sheet, Sarah recognized the importance of tracking her monthly income and expenses. She knows that understanding her cash flows will help her stay on course with her financial goals.

As a recent graduate thrust into the real world with her first job, Sarah was determined not to succumb to the all-too-familiar pitfalls of unchecked spending and minimal savings. Earning a consistent paycheck ($4,500) and living by herself means she has inflows and outflows to monitor closely. And with goals like repaying debts, building an emergency fund, and future investments in mind, it became clear to Sarah that she needed a comprehensive tool to keep tabs on her money.

Creating the Personal Cash Flow Statement

Taking another weekend, Sarah organizes her bank statements, pay stubs, bills, expense-tracking app printouts, and receipts she has accumulated over the past month to compile an accurate cash flow statement. She then begins listing down all sources of cash inflow and outflow.

CASH INFLOWS

• Base Salary from Advertising Agency: $3,420 (after a 24% tax deduction)

FREELANCE INCOME

• Graphic Design Projects: $996

INVESTMENT RETURNS

• Dividends from Index Funds: $35

NON-INVESTMENT PASSIVE INCOME

• Affiliate Marketing from Personal Design Blog: $236
• Ad Revenue from Personal Design Blog: $112
• Sale of Old Laptop: $300
• Total Cash Inflows: $5,099

CASH OUTFLOWS

ESSENTIAL EXPENSES

• Rent: $1,200
• Groceries: $300
• Utilities: $200 (including electricity, water, and internet)
• Gas (for transportation): $120
• Health Insurance (deducted from her salary): $120
• Car Insurance: $90
• Personal Care (haircuts, toiletries): $60
• Public Transportation: $50
• Total Essential Expenses: $2,140

NON-ESSENTIAL EXPENSES

• Dining Out: $250
• Miscellaneous Purchases: $100
• Gym Membership: $50
• Streaming Services (Netflix, Spotify): $25
• Total Non-Essential Expenses: $475

DEBT PAYMENTS

• Student Loan Repayment: $300
• Car Loan Payment: $200
• Credit Card Minimum Payment: $100
• Personal Loan from a Friend: $100
• Total Debt Payments: $700
• Savings Account Contribution: $500
• 401k Contribution: $225 (5% of her gross salary)
• Total Savings: $775
• Investment into Index Funds: $200
• Total Investments: $200
• Total Cash Outflows: $4,140
• Net Cash Flow: $959

Upon completing her personal cash flow statement, Sarah is relieved to see a positive net cash flow of $959. This positive net cash flow means she’s living within her means and has a surplus after paying all monthly obligations.

However, she recognized that $300 of the surplus was from a one-time sale of her old laptop—an irregular form of income. This meant that her consistent net cash flow was actually $659—give or take a couple of dollars due to the unpredictable nature of her non-investment passive income.

With this in mind, she decided to further allocate her net cash flow towards:

• Caution with Irregular Income: She decided not to rely on her asset sale for recurring monthly expenses. Instead, she’d treat such irregular income as a bonus. 
• Debt Acceleration: In a bid to reduce high-interest liabilities faster, Sarah allocated an additional $395.40 (or 60% of her monthly disposable income) from her regular surplus towards her credit card debt, increasing the monthly payments to $495.40. By so doing, she will pay off the debt within five months, as long as she doesn’t incur any more credit card debt.
• Emergency Fund Boost: After accounting for the credit card payment, she decides to save an extra $131.80 (20% of $659) from her regular surplus to her emergency fund, bolstering her financial safety net. 
• Personal Loan Payoff Strategy: Remembering the personal loan she took for a family emergency, she committed to allocating 20% of her monthly disposable income to repay it faster. This would amount to $131.80 (20% of $659) every month, in addition to the $100 she currently pays, taking the total monthly payment to $231.80. Sticking to this payment strategy will help her pay off the loan within five months, as opposed to the initial ten.
• Non-Essential Expenditures Review: Sarah observed that her dining out expenses were relatively high. So, she decided to reduce it by $100 (40%) and divert that amount towards her student loan repayment. Doing so will help her pay off the loan three years earlier and save $2,868 in interest payments.
• Car Loan: Sarah realized that by paying $200 monthly, she was already on track to pay off her car loan within four years, three years earlier than her loan term, saving $1,270 in potential interest payments.
• Passive Income : Seeing the success of her personal design blog, Sarah considered investing more time to increase her advertising and affiliate marketing income.

Benefits Sarah Gained From Creating a Personal Cash Flow Statement

• Enhanced Financial Awareness: Sarah better understood her financial status after creating her cash flow statement. This exercise helped her spot patterns, such as her monthly takeout habit, making her reconsider her spending decisions.
• Precise Goal Setting: Sarah found it easier to set financial targets once she knew her disposable income. This ensured she wasn’t setting herself up for failure but creating realistic and achievable financial objectives.
• Effective Debt Management: Completing the cash flow statement, Sarah was better poised to manage her multiple debts. Recognizing the prudence of paying off high-interest debts first, she drafted a strategic repayment plan, saving herself from additional interest accumulation.
• Temporary Snapshot: Sarah understands that the cash flow statement provides data for a specific period. Thus, she plans to review and update hers regularly to monitor financial changes over time.
• Wealth Indication: Aware that the cash flow statement doesn’t reflect total wealth, Sarah complements it with a personal balance sheet to gauge her overall financial health.
• Expenditure Accuracy: Sarah addresses the challenge of overlooked expenses by meticulously tracking every penny, often using financial tracking apps for accuracy.
• Regular Review: Sarah plans to diligently review her cash flow statement every month to ensure it’s updated and reflective of her current financial state. 
• Digital Assistance: Sarah uses expense-tracking apps to automatically categorize and track her inflows and outflows to streamline the process.
• Emergency Preparedness: Sarah maintains an emergency fund, understanding the unpredictability of life events.

Creating a personal cash flow statement was yet another financial eye-opener for Sarah. Just as the personal balance sheet had given her insight into her net worth, the cash flow statement offered her a clear view of her monthly financial activities. She could see where her money came from and where it was going, ensuring she wasn’t merely flying blind when managing her monthly expenses and income.

Sarah’s positive net cash flow is encouraging, and her decisions to accelerate debt repayment and consistently increase her savings demonstrate both proactiveness and foresight. Armed with the insights from her cash flow statement, she is now even more committed to fortifying her financial resilience, ensuring she is not just living for the present but is also well-prepared for the future.

Want a hassle-free way to monitor your finances? Download our free personal financial statement template. Easy to use and fully customizable—it’s everything you need to keep track of your assets, liabilities, and cash movements.

DOWNLOAD: Personal Balance Sheet and Cash Flow Statement Template

How to Use the Template

The template is a view-only file and can’t be edited. To use, click on “File” and then select “Make a copy.” This will get you a copy of the template that can be modified.

Don’t request edit access, please.

In today’s complex economy, tools like a personal balance sheet and a cash flow statement aren’t just nice to have—they’re essential for understanding and navigating your finances.

Think of the balance sheet as a still photo, capturing your assets and liabilities in one snapshot. It allows you to calculate your net worth and can highlight areas for improvement. In contrast, the cash flow statement is like a movie, illustrating the dynamic movement of your funds and providing insights into your liquidity and spending habits.

Individually, these statements offer valuable insights, such as revealing if you’re splurging too much on non-essentials or if debts are becoming unmanageable. Yet, when combined, they paint a comprehensive picture of your financial standing and habits. This dual perspective ensures you know your financial status and how your habits shape it.

As illustrated by the case studies, creating these financial statements is simple, especially with the templates provided in this guide. These templates simplify the process of creating these statements with their auto-calculating fields and intuitive categories. They guide you through the process, minimizing errors. Remember, keeping these statements updated is vital to ensuring you’re on track with your financial goals, be it budgeting, retirement planning, or merely gauging your fiscal health.

Feel free to work with a financial planner or advisor if you find it challenging to decipher and leverage insights from your financial statements. Not only can they assist you in understanding these statements, but they can also offer personalized strategies tailored to your unique financial situation. Beyond helping you interpret these statements, they can also advise on investments, tax planning, and other aspects of financial management that might be outside your comfort zone.

By understanding, creating, and maintaining these personal financial statements, you’ll have the tools to navigate your financial journey, align your financial habits with your goals, and build a secure financial future.

Remember, maintaining and reviewing these statements regularly is as important as their initial creation. As your financial situation evolves—like with a new job, added expenses, or changes in investments—your statements should reflect those shifts to offer accurate insights. So, watch those numbers, make wise choices, and remember—you’ve got this!

About the Author

Abolade Akinfenwa is a multi-certified finance professional. He’s certified as a Financial Modeling & Valuation Analyst (FMVA)®, Capital Markets & Securities Analyst (CMSA)®, Commercial Banking & Credit Analyst (CBCA)®, Financial Planning & Wealth Management Professional (FPWM)™, and FinTech Industry Professional (FTIP)™. With over three years of experience as a Financial Writer, Abolade specializes in helping finance professionals build authority and generate qualified leads for their services. Interested in collaborating or seeking insights? Connect with Abolade via LinkedIn or Twitter , or email him at [email protected] .

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Original text

Why All Small Business Owners Need a Personal Financial Statement

Running a small business is exhilarating, demanding and often a blur of financial uncertainty. While most entrepreneurs focus on their business’s bottom line and keep their financial statements current, they often neglect to document their personal finances. That’s wrong. Every small business owner needs to create a personal financial statement (PFS), which serves as a personal balance sheet, documenting your assets, liabilities and net worth. 

When do you need a personal financial statement?

Many small business owners may need a loan or other outside financing as they grow their companies. That usually requires providing a lot of documentation to the lender. But lenders don’t only want to see your business finances. Most require a personal financial statement as well.

If you decide to pledge personal assets as collateral, lenders definitely want to know the details about those assets. Financial institutions may wish to conduct a fiscal health evaluation of your personal finances so they can assess how well you manage money. For instance, if you have few assets and a lot of outstanding debt, it can indicate you would have trouble repaying a loan.

Are you thinking of buying an existing business or a franchise? The business owner, broker and/or franchisor will ask for a PFS as evidence that you’re financially able to purchase the business or franchise.

If you plan to rent a commercial office, retail space, or other types of business space, the landlord will likely request a personal financial statement before approving your lease.

As you can see, there are numerous reasons you need a PFS. It’s smart to prepare yours now (and keep it updated) so it will be ready when needed.

Personal financial statements are financial snapshots offering numerous benefits.

Beyond simply tracking your assets and liabilities, a PFS offers several vital benefits for entrepreneurs. Creating your PFS is like getting a checkup, except the result is a fiscal health evaluation rather than a physical one.

Some of the benefits of preparing a personal financial statement (sometimes called a personal financial summary):

•   Securing funding: As we already noted, when seeking loans for business expansion, new equipment or company vehicles, lenders rely on your PFS to assess your creditworthiness and ability to repay. A strong PFS significantly increases your chances of securing favorable loan terms and interest rates.
• Understanding your net worth: Your PFS provides a clear picture of your overall financial standing, including your assets (cash, investments, property) and liabilities (debt, loans, mortgages). Seeing a comprehensive view helps you make informed decisions about investments, savings goals and risk management.
• Making prudent financial decisions: With a clear understanding of your income, expenses and debt obligations, you can make informed choices about spending, investments and financial planning. Your PFS empowers you to avoid impulsive decisions and build a solid financial foundation.
• Monitoring progress and adapting: Regularly reviewing your PFS allows you to track your progress toward your financial goals and identify areas for improvement. This ongoing review process enables you to pivot, adapt, and adjust your strategies as your business and personal circumstances evolve.

What's included in a personal financial statement?

A typical PFS is divided into two main sections—assets and liabilities.

List of assets

• Current Assets include cash, checking and savings accounts, certificates of deposit, short-term investments and accounts receivable.
• Investment Assets include stocks, bonds, mutual funds and retirement accounts (IRAs, 401(k)s).
• Fixed Assets include real estate holdings and personal property, such as jewelry, cars and other items of significant value (art collection, first editions of books, etc.)

List of liabilities

• Current Liabilities include credit card debt, outstanding bills and short-term loans.
• Long-term Liabilities include mortgages, car loans, student loans and personal loans.

Do not include business assets or liabilities in your personal financial statement.

Creating your financial snapshot

You don’t need to be a financial wizard to create a PFS. Here’s how:

• Gather your documents: Collect bank statements, investment account statements, loan documents and receipts for major purchases.
• Choose a format: You can use an online template, spreadsheet or pen and paper. Choose the best format for you and ensure consistency for future updates.
• List your assets: Identify and value all your assets using current market values for investments and real estate.
• List your liabilities: Include all your debts, noting the remaining balances and interest rates.
• Calculate your net worth: Subtract your total liabilities from your assets to determine your net worth. While this is part of your overall personal balance sheet, you should keep this calculation as a separate net worth statement.
• Review and update regularly: Your PFS is not static. Update it regularly, ideally quarterly, to reflect changes in your financial situation.

When creating your personal financial statement, it’s critical to be honest and accurate. This wealth assessment is for your own benefit to help you (and lenders) make informed decisions. No one is judging you.

A PFS helps you take ownership of your personal finances and equips you with the knowledge and confidence to navigate the challenges and reap the rewards of entrepreneurship. A healthy business rests on a solid personal financial foundation.

If navigating financial statements feels overwhelming, consider consulting with a financial advisor, accountant or SCORE mentor .

National Bankers Association Foundation

The  National Bankers Association Foundation’s  mission is to eliminate the racial wealth gap by ensuring underserved communities have fair access to transformative financial education, services, and resources. To accomplish this, we support the work of Minority Depository Institutions (MDIs) through our four strategic pillars, which include: Financial Education, Entrepreneurship and Small Business, Research and Impact, and Collaboration and Capacity Building.

Copyright © 2024 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.

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Do you know your net worth? Create a personal balance sheet to find out

CNBC Make It  is posting a new financial task to tackle each day for a month. These are all meant to be simple, time-sensitive activities to take your mind off of the news for a moment and, hopefully, put you on sturdier financial footing. This is day 11 of 30.

Balance sheets, which list out all of a company's assets and liabilities, are useful tools for a company to understand how much it is actually worth and for outsiders to determine if it's a worthy investment. When applied to your own life, a financial balance sheet can illustrate if you're on the right path to accomplish your own goals, such as getting out of debt, by showing you how much and what you own, what debts you have to repay and how much you are worth in total.

Today, create a personal balance sheet, referred to as a statement of financial position by financial planners, of all of your assets and liabilities. This will give you a better idea of your total financial picture than a budget or expenses spreadsheet because it lists out all of the big picture things you own and owe, not just what you are spending money on day to day.  

This might take you longer to accomplish than some of the other tasks, but it's worth the effort. Here's how to do it. 

Gather your financial documents

If you've been tracking your spending , then you have an idea of where your money is going. Otherwise, you'll need to collect your monthly loan and credit card statements, as well as bank and investment account balances in order to list out all of your assets and liabilities.

Your assets are things that you own that can have value, including any cash savings, certificates of deposits (CDs), retirement and other investment accounts, the value of your home, other real estate, cars, jewelry or heirlooms. 

Liabilities are money you owe to another person or a financial institution, including credit card debt, student loan debt, car loans, mortgages, personal loans and medical debt.

List assets and liabilities 

Once you have all of your documents, use an Excel sheet or paper and pen (or search for a template online) to list out your assets and liabilities in two columns, side by side. Include the value of each item so you can add up the totals at the end.

All of the values should be from the same day so that this sheet reflects the same, single point in time for your finances. 

Assess your balance sheet

Once you have everything listed out, add up each column and subtract your total liabilities from your total assets. This will give you your net worth . 

Now take a closer look at each column. What can you change to help you reach your financial goals? You might find that you are investing more than you thought in a 529 investment account for your child's college, for example, and you'd like to move some of that money to your retirement investment account. 

Finally, schedule a reminder to update your balance sheet regularly, such as once a year or every quarter. That way you'll always have the up-to-date information you need to see if you're on track to accomplish your goals.

Don't miss the last five days: 

• Day 6 :  Take 5 minutes to sign up for a personal finance newsletter
• Day 7 :  This simple task will show you if you're wasting money on things you don't need
• Day 8 :  Create an essentials-only budget
• Day 9 :  Check your credit score
• Day 10 : Write down your interest rates

Check out:  The best credit cards of 2020 could earn you over $1,000 in 5 years

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What Is a Personal Financial Statement?

Definition and Examples of a Personal Financial Statement

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A personal financial statement is a document that details an individual's assets and liabilities. It's often used by lenders to learn a loan applicant's net worth and other details of their financial life.

Learn how to prepare a personal financial statement, and why it's so important for loans. 

What Is a Personal Financial Statement? 

A personal financial statement details your finances in a simple form. This is an important document for those seeking a business loan proposal. It allows lenders to quickly glean your assets and liabilities. If you are married, the personal financial statement may include your spouse's assets and liabilities, as well. 

Your assets are the things you own that you can turn into cash, such as a home, a checking account balance, or stocks. Your liabilities are amounts you owe to others, such as your mortgage, student loans, and credit card debt.

Your net worth is the difference between your assets and your liabilities, so your financial statement will allow lenders to determine your net worth. For example, if you have a house and a car with a value of $100,000, and you have a mortgage and car loan for $75,000, your net worth is $25,000.

Net worth for an individual is similar to owner's equity for a business. Therefore, a personal financial statement is similar to a business's balance sheet .

How a Personal Financial Statement Works

If you are presenting a business plan or business loan request to a lender, they will probably ask for a personal financial statement. You may be asked to provide a personal guarantee for part of the loan, or you may have to pledge some of your personal assets to guarantee the loan (this is called a "collateral loan"). 

If you have to pledge some of your assets, the personal financial statement will be required so the lender can see if you have enough assets to cover the loan. The personal financial statement will also detail the kinds of assets you have. For example, if you are pledging investments (like an IRA or 401k), the bank will need to know the amount of the investment and where it is kept.

The Small Business Administration (SBA) has a  sample personal financial statement  you can use to collect the information you need.

How Do I Prepare a Personal Financial Statement?

The format of the personal financial statement is standard. It shows assets on the left and liabilities on the right (like a balance sheet). Net worth is also displayed on the right-hand side of the statement. 

To begin, start gathering information about assets and liabilities. The people reading your personal financial statement know that it simply captures your net worth a point in time, so prepare the document with the most recent information you have, but don't worry if some of the documents are a few weeks old. Your lender understands that some of this information is constantly in flux.

Some of the assets and liabilities that should be listed include:

• Cash in a checking or savings account
• An IRA, 401(k), or any other retirement accounts
• Brokerage accounts
• A copy of the latest statement on your home mortgage, with the balance outstanding (you may also need a recent appraisal )
• A copy of the latest statement on your car loan, boat loan, or any other loans
• Personal property with significant value that can be verified with an appraisal, such as antiques or jewelry (but not household goods or furniture)
• Credit card debt, and any other debt that may show up on a credit report
• Any joint debt you took on by being a co-signer on a loan with someone (this is called a "contingent liability")
• Money owed from a small claims judgment, lien , or similar outstanding liabilities
• Unpaid taxes from previous years, including any business payroll taxes for which you are personally responsible

Some assets—like stocks—have a clear dollar value, but not all assets are as easy to account for. If you are unsure of the value of assets, do your best to get a reasonable figure, but be realistic. If the lender wants to use the asset for a guarantee on your business loan, they will do an appraisal.

Rentals aren't included in a personal financial statement, because there is no ownership. Renting a house or leasing a car creates a monthly expense, but you don't own these items, so they don't get included in this statement unless you're specifically asked to detail your expenses.

Some personal financial statement formats ask you to include your annual income and expenses. The income should match your most recent income tax return. The expenses should include taxes, insurance payments, and an estimate of any other regularly occurring expenses.

As part of your preparation for presenting your business plan, you should run a complete credit report on yourself. The lender will certainly do this, and you want to know what they'll find. This means going beyond the FICO score to get a full report that shows details.

When you have entered all the information on assets and liabilities, you can finally calculate your net worth by subtracting the liabilities from the assets.

You may find that you have a negative net worth, meaning that you owe more than you own. If that's the case for you, don't try to change the document by eliminating liabilities or over-estimating assets; just accept your situation. Knowingly misrepresenting yourself on a financial statement could result in up to five years of imprisonment and a fine of up to $250,000.  

Key Takeaways

• A personal financial statement is a document that details a person's assets and liabilities.
• Personal financial statements are often used by lenders to assess the net worth of loan applicants.
• Lying on personal financial statements can result in hefty criminal penalties.

Small Business Administration. " Personal Financial Statement ," Page 3. Accessed June 30, 2020.

• Statement of Financial Position

Home › Accounting › Financial Statements › Statement of Financial Position

• What is the Statement of Financial Position?

Assets Section

Liabilities section, equity section, does the balance sheet always balance.

The statement of financial position, often called the  balance sheet , is a financial statement that reports the assets, liabilities, and equity of a company on a given date. In other words, it lists the resources, obligations, and ownership details of a company on a specific day. You can think of this like a snapshot of what the company looked like at a certain time in history.

This definition is true in the sense that this statement is a historical report. It only shows the items that were present on the day of the report. This is in contrast with other financial reports like the income statement that presents company activities over a period of time. The statement of financial position only records the company account information on the last day of an accounting period.

In this sense, investors and creditors can go back in time to see what the financial position of a company was on a given date by looking at the balance sheet.

Let’s take a look at a statement of financial position example.

As you can see from our example template, each balance sheet account is listed in the accounting equation order. This organization gives investors and creditors a clean and easy view of the company’s resources, debts, and economic position that can be used for  financial analysis purposes .

Investors use this information to compare the company’s current performance with past performance to gauge the growth and health of the business. They also compare this information with other companies’ reports to decide where the opportune place is to invest their money.

Creditors, on the other hand, are not typically concerned with comparing companies in the sense of investment decision-making. They are more concerned with the health of a business and the company’s ability to pay its loan payments. Analyzing the leverage ratios, debt levels, and overall risk of the company gives creditors a good understanding of the risk involving in loaning a company money.

Obviously, internal management also uses the financial position statement to track and improve operations over time.

Now that we know what the purpose of this financial statement is, let’s analyze how this report is formatted in a little more detail.

The statement of financial position is formatted like the  accounting equation  (assets = liabilities + owner’s equity). Thus, the assets are always listed first.

Assets are resources that the company can use to create goods or provide services and generate revenues. There are many ways to format the assets section, but the most common size balance sheet divides the assets into two sub-categories: current and non-current. The current assets include cash, accounts receivable, and inventory. These resources are typically consumed in the current period or within the next 12 months.

The non-current assets section includes resources with useful lives of more than 12 months. In other words, these assets last longer than one year and can be used to benefit the company beyond the current period. The most common non-current assets include property, plant, and equipment.

Liabilities are debt obligations that the company owes other companies, individuals, or institutions. These range from commercial loans, personal loans, or mortgages. This section is typically split into two main sub-categories to show the difference between obligations that are due in the next 12 months, current liabilities, and obligations that mature in future years, long-term liabilities.

Current debt usually includes accounts payable and accrued expenses. Both of these types of debts typically become due in less than 12 months. The long-term section includes all other debts that mature more than a year into the future like mortgages and long-term notes.

Equity consists of the ownership of the company. In other words, this measures their stake in the company and how much the shareholders or partners actually own. This section is displayed slightly different depending on the type of entity. For example a corporation would list the common stock, preferred stock, additional paid-in capital, treasury stock, and retained earnings. Meanwhile, a partnership would simply list the members’ capital account balances including the current earnings, contributions, and distributions.

In the world of nonprofit accounting, this section of the statement of financial position is called the net assets section because it shows the assets that the organization actually owns after all the debts have been paid off. It’s easier to understand this concept by going back to an accounting equation example. If we rearrange the accounting equation to state equity = assets – liabilities, we can see that the equity of a non-profit is equal to the assets less any outstanding liabilities.

Notice that the balance sheet is always in balance. Just like the accounting equation, the assets must always equal the sum of the liabilities and owner’s equity. This makes sense when you think about it because the company has only three ways of acquiring new assets.

It can use an asset to purchase and a new one (spend cash for something else). It can also take out a loan for a new purchase (take out a mortgage to purchase a building). Lastly, it can take money from the owners for a purchase (sell stock to raise cash for an expansion). All three of these business events follow the accounting equation and the  double entry accounting system  where both sides of the equation are always in balance.

Accounting & CPA Exam Expert

Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career.

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Personal Financial Statements: Effective Guide (With Examples)

Table of Contents

A common misconception is that only accountants and other business professionals read financial statements. In reality, individuals from all walks of life can benefit from understanding the information contained in these reports. You can learn more about financial statements by studying the examples of personal financial statements below.

Personal financial statements can be extremely helpful in understanding your finances. If you look at your income, expenses, and assets, you can make informed decisions in the future.

This article will provide an overview of personal financial statements , including their purpose and examples.

What Is a Personal Financial Statement?

The personal financial statement is a document that details all your sources of income and expenses over a particular period. Knowing the costs incurred for a given period can help you analyze your income and financial position. 

The personal financial statement gives you an insight into your current financial situation . The document details on your assets (property, savings, investments, etc.), liabilities (debts and other obligations), and net worth.

Your net worth is calculated as the difference between your assets and liabilities. This figure can measure your overall financial health and track progress over time.

Types of Personal Financial Statements

There are three main types of personal financial statements: the balance sheet, income statement, and cash flow statement. 

1. The Balance Sheet

Balance sheets list a person’s assets and liabilities and provide a snapshot of their financial condition at a given time. 

2. The Income Statement

Revenue and expenses are recorded during a particular period, such as one month or year. 

3. The Cash Flow Statement

A cash flow statement shows money flow into and out of business over a certain period. For an individual, this would include earnings, investments, loans, etc. 

Generally, consolidated financial statements help you understand your entire financial picture and provide a snapshot of your financial situation. 

Importance of Personal Financial Statements

There are many important reasons to use personal financial statements. The most obvious reason is that they help you track your current financial situation and performance over time. By reviewing your financial information regularly, you can identify trends in your income and expenses, assess your saving goals, and more. 

Another key benefit of using personal financial statements is that they can help improve communication with lenders or investors. Potential creditors can make sound lending decisions quickly and efficiently when they know where you are financially (including assets, liabilities, and net worth). In some cases, a well-presented personal finance statement is enough to persuade a lender to offer better terms on a loan agreement!

Examples of Personal Financial Statements

A personal financial statement is an account of your personal financial situation. A financial statement is created on a set of agreed-upon principles. These principles include transparency, accuracy, and authenticity.

What’s important is that the financial statement must differ from what a particular person considers their financial situation. In other words, the information should reflect more than the individual’s subjective state of affairs at a given time. Below are examples to guide you:

Example 1: Personal Financial Statement of [User Name]

A house worth $150,000 

A truck worth $20,000

Investments with a market value of $100,000 

Cash & bank balances of $50,000 

Collectibles and artifacts valued at $45,000

The Total Assets are calculated as follows:

Total Assets = $150,000 + $20,000 + $100,000 + $50,000 + $45,000 

Total Assets = $365,000

[Liabilities]:

A truck loan with a current outstanding of $15,000 

Factory equipment loan with an existing outstanding of $25,000 

Credit card bills worth $5,000 

Other personal loans of $70,000 

The Total Liabilities are calculated as: 

Total Liabilities = $15,000 + $25,000 + $5,000 + $70,000 

Total Liabilities = $115,000

This is what makes a net worth. 

Total Assets – Total Liabilities = The Net Worth

Net Worth = $365,000- $115,000 

Net Worth = $250,000 

[User name] net worth is $250,000. 

Personal Financial Statement 

1) Name of Individual 

2) Address 

3) Social Security Number 

4) Employer Identification Number (if applicable) 

5a. Assets: 

Cash on hand $12, 000

Checking account $60, 000

Savings account $120, 000

Money market funds $15, 000

Total assets = $207, 000

5b. Liabilities: 

Mortgage or home equity loan outstanding balance of $60, 000

Other liabilities–$40, 000

Total liabilities=$100, 000

c. Net worth = Assets – liabilities = $107, 000

Make sure you constantly update your financial statement, so you can monitor your progress and make any necessary adjustments.

Personal financial statements are generally very useful for understanding your overall financial situation. By looking at your income, expenses, and assets/liabilities, you can better understand where you stand financially and where improvements may be needed. Seeing this information in writing can also help motivate you to make changes in your spending habits or save more money!

Though personal financial statements can be daunting at first, they provide an immensely helpful view into your overall financial picture . Use the examples of personal financial statements in this article to improve your current situation or to prevent unpleasant surprises later on.

Abir Ghenaiet

Abir is a data analyst and researcher. Among her interests are artificial intelligence, machine learning, and natural language processing. As a humanitarian and educator, she actively supports women in tech and promotes diversity.

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What Is a Statement of Financial Position? And Why It Matters to Your Business

What is a statement of financial position?

Who uses a statement of financial position, components of a statement of financial position.

• Types of statement of financial position
• Watch for value issues in your financial statement

Know what makes a statement of financial position a powerful tool to determine the financial health of your business.

Busy trading, running sales calls, or managing employees? Who has time for finances?

Small business owners juggle multiple responsibilities, and in the bustle, accounting often takes a back seat. But even though your bank balance seems okay, there could be declining fundamentals that may not show up until it’s too late.

If you’re a business owner, an investor, or part of management, the quickest path to peace of mind is knowing the numbers of your business. Whether you hire in-house accounting talent, outsource your accounting needs , or do it yourself, it’s crucial to know where you stand financially.

One of the best ways to keep an eye on your finances is through a statement of financial position, also called a balance sheet. It’s the most commonly prepared of all basic financial statements .

In this article, we explain what a statement of financial position is and why it’s a powerful tool to determine the financial health of your business. We also provide some tips to easily prepare and analyze it using financial planning and analysis technology .

A statement of financial position is another name for your company’s balance sheet. It reveals what your firm owns (assets), how much it owes (liabilities), and the value that would be returned to the investors if your business was liquidated (equity).

A statement of financial position is prepared at the end of an accounting period—which is typically 12 months—and provides a snapshot of the overall financial position of your company at a given time. This is in contrast to other financial statements such as an income statement that shows where money is being spent on a day-to-day basis.

A statement of financial position is used by business owners, investors, and management to quickly get an overview of the financial strengths and potential of a business. These stakeholders use the statement to guide their fiscal decisions for the future.

Business owners and department heads use a statement of financial position to take internal decisions about:

Buying more inventory based on current inventory buildup. The current asset component in the statement of financial position allows business owners to take strategic calls on how much to expand in terms of production.

Applying for credit based on outstanding payments. Before applying for credit, business owners should take a look at how their company is financed (via equity or liabilities) presently and decide if they can afford to take on more credit.

Cutting expenses based on a comparative analysis of various current expenses. Business owners should determine which items their company is spending the most on and trim down unnecessary expenses. They can use sales numbers from other financial statements—the income statement, for instance— to draw a correlation between expenses and revenue.

Shareholders and investors use a statement of financial position to:

Understand how assets are built in a business—too much debt can be dangerous for new investors.

Decide if a business presents a good investment opportunity.

Compare a business’s present financial performance against its past performance or the performance of industry peers.

Creditors are more interested in using a statement of financial position to:

Understand a company’s ability to pay back debt.

Assess and manage the risk involved in extending credit to a company.

Overall, a statement of financial position helps users of financial information keep the business profitable in the short as well as long run. It also helps reaffirm stakeholders’ vision and mission by evaluating the pace toward their goals and refining their strategies.

Who prepares a statement of financial position (or balance sheet)?

Depending on the size of an organization, different people may be involved in creating the statement using GAAP (accounting system used in the U.S.) or IFRA (accounting system adopted by 100+ countries) standards.

In independent and small businesses with 1 to 500 employees, business owners or bookkeepers usually prepare the statement of financial position. In midsize firms with over 500 employees, in-house accountants usually prepare the statement, and external auditors are consulted to look over and approve it.

Preparation of this financial statement follows a particular format for arranging its major components and items, which we explain in the next section.

To depict how a business acquires resources to run operations, a statement of financial position highlights three sections: assets, liabilities, and equity. At any given time, assets must equal liabilities plus owners’ equity.

Assets = Liabilities + Equity

On the financial position statement, assets are represented on the left, and liabilities and equity on the right. Assets and liabilities are further subdivided into current and noncurrent (or long term) depending on the ease with which assets can be converted into cash and liabilities can be settled.

Current assets: Resources that can be converted into cash within the next 12 months. Examples include cash equivalents and accounts receivables.

Current liabilities: Obligations that are to be paid off within a year. An example is the money your business owes to creditors (accounts payable).

Noncurrent assets: Also called long-term or fixed assets, these resources cannot be converted into cash within a year and are used to run the business. Examples include furniture (tangible assets) and patents (intangible assets).

Noncurrent liabilities: Obligations or debt (or their portions) that take more than a year to be repaid. An example is your employees’ pension.

Shareholders equity: The amount an investor or a shareholder will receive if your company is liquidated after clearing all debt obligations.

Types of statement of financial position (with visual examples)

Independent and small businesses tend to have simpler statements of financial position compared to large businesses, which usually have many complex classifications under all components. Irrespective of the business size, there are three ways accountants format a statement of financial position: common size, comparative, and vertical.

1. Common size statement of financial position

It’s the most popular format to prepare a statement of financial position. Unlike other formats, each column in a common size balance sheet notes the information as a percentage of total assets.

It displays information in the form of an accounting equation with assets on the left and liability and equities on the right (illustrated below). In practice, however, you don’t necessarily have to follow the equation format for representation; you can also use vertical presentation.

Use a common size statement to:

Determine the contribution of individual components (asset, liability, and equity) and items listed with respect to the total assets.

Compare your company’s performance against competitors’.

Identify how your business has sourced assets over time.

Example of a common size balance sheet

2. Comparative statement of financial position

This format represents the performance of the three components over time. It shows historical figures alongside the latest figures and the percentage change. The right and left division (as in a balance sheet) is generally not used in this format.

Use a comparative statement to:

Track and analyze your company’s progress over time.

Explore changes and identify underlying trends year-by-year.

Weigh your company’s performance against that of industry peers. For instance, you can compare responses to the same market conditions by comparing the percentage changes.

Example of comparative balance sheet

3. Vertical statement of financial position

In vertical format, the components are presented in a single column, starting with assets and then equity and liabilities. Also, within each category, the items are arranged in order of liquidity—from less liquid (such as long-term or noncurrent asset) to more liquid (such as cash equivalents). Liquidity refers to the ease with which a resource can be converted into cash.

Use a vertical statement to:

Compare the components within the same accounting period.

Understand the correlation between different line items on the balance sheet.

Example of a vertical balance sheet format

Be mindful of the value problem in a statement of financial position

Exercise judgment when drawing conclusions from the numbers on a statement of financial position. The method used to prepare the financial statement results in certain limitations that you must keep in mind. Here are some of them:

An asset cannot be valued on a statement of financial position unless it has been involved in a transaction. So, if a company has developed a web platform, its value will not be mentioned in the statement.

Assets such as machinery cannot be valued correctly despite accounting for depreciation (due to wear and tear), as they fail to account for changes in current value due to market fluctuations.

The statement only shows a snapshot of a company's financial condition at the year-end. So, it will show a company as financially healthy even if it settles its debts on the last day of the accounting period. It fails to look for consistency.

As you prepare a statement of financial position, be more critical than a passive user of the statement of financial position.

Use software to create a statement of financial position

Excel and spreadsheets, popularly deployed to prepare statements of financial position or balance sheers, are often prone to human errors. The easiest and more accurate way is to use financial reporting software . Here are a few ways using software can speed up and improve your accounting process, from record to report (R2R) :

Get more time to focus on analysis. Depending on the financial reporting software you use, along with auto tools to prepare a balance sheet, you would have access to business intelligence tools and add-ons. These will equip you to take time for deeper financial analysis—from projecting net income and forecasting expenses to determining profitability.

Extract data to create interactive financial reports. You can automate the collection of financial data from across the organization and use intuitive financial dashboards to report the most important data and track metrics that impact business goals.

Reconcile balance sheet easily. Reconciling the balance sheet is about going back to the source of money and comparing balance sheet accounts to the sources. For most small businesses, the source is their bank statements. Financial accounting software enables you to easily track and correct discrepancies and ensure your balance sheet is correct.

Ready to hire an accounting firm for your business needs? Browse our list of top accounting firms and learn more about their services in our hiring guide .

Was this article helpful?

About the author.

Amita Jain is a senior writer for Capterra, covering finance technology with a focus on expense management and accounting solutions for small-to-midsize businesses. After completing her master’s in policy studies from King’s College London, she began her career as a journalist in New Delhi, India, where she garnered first-hand knowledge of the startup space and the education sector. She spent nearly half a decade covering high-level events hosted by the United Nations and the Government of India. Her work has been featured in Gartner and Careers360, among other publications.

When she’s not contemplating tech solutions for SMBs, Amita finds her zen in swimming, doodling, and indulging in animated sitcoms and science fiction.

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• Personal Financial Statement

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on November 15, 2023

Get Any Financial Question Answered

Table of contents, what is a personal financial statement.

A personal financial statement is a report or set of documents that summarizes an individual's financial situation at a particular time.

It is often divided into two sections: the balance sheet and the income statement.

The balance sheet provides a breakdown of assets and liabilities, while the income statement summarizes income and expenses.

General information about an individual, such as name and address, may also be included in a personal financial statement.

Individuals can use personal financial statements to monitor their current economic situation.

What Personal Financial Statement Includes

A personal financial statement is typically divided into two sections. These are:

Balance Sheet

The financial statement contains a section known as a balance sheet, which summarizes a person's assets, including cash and investments , and liabilities like debts or loans.

The balance sheet is also used to calculate an individual’s net worth, which is the value of assets minus the amount of liabilities.

Income Statement

The next section, the income statement , details the flow of income and expenses that influences a person's financial situation.

Income statements list all sources of income, such as salaries, bonuses, and dividends .

Expenses such as insurance payments, electricity, or grocery bills are also included.

What Personal Financial Statement Excludes

A personal financial statement does not include the following items:

Company Assets and Liabilities

Company resources and debts are removed from the financial statement unless the individual has direct and personal responsibility.

When someone personally guarantees a loan for their business, the loan is included in their personal financial statement.

Loaned Items

Loaned assets are not owned, so they are not included in personal financial statements.

However, if an individual owns a property and rents it out to others, then the property's value is included in the financial statement list.

Personal Belongings

Furniture and home goods are often not shown as assets on a personal balance sheet since they cannot be easily sold to pay off a loan.

Personal goods with high monetary value, such as jewels and antiques, may be included if their worth can be shown by an evaluation.

Personal Financial Statement Example

Let us look at an example of a personal financial statement using the hypothetical case of Jeffrey.

Below is an example of what Jeffrey’s balance sheet may look like in spreadsheet form.

As shown above, Jeffrey has $295,500 worth of assets. This includes the assets like a house, a vehicle, bank accounts, and a retirement account.

Now let us say he has $101,000 in liabilities as well. This includes credit card debts, student loans and mortgages.

With this information, his balance sheet should reflect a net worth of $194,500.

Here is an example of what Jeffrey’s income statement may look like in spreadsheet form:

As shown above, Jeffrey receives a total monthly income of $14,200 and spends a total of $8,610 in expenses.

After subtracting expenses from income, Jeffrey has a net income of $5,590.

Taken together, Jeffrey’s balance sheet and income statement provide useful information about his current financial situation.

How to Create a Personal Financial Statement

Let us look at a guide on how to create a personal financial statement.

How to Create a Personal Balance Sheet

• List All Assets

Indicate the dollar value of the assets to be declared. Accuracy is important, particularly when creating a statement for the purpose of borrowing.

Find the total value of all available assets.

• List All Debts

Liabilities come from debts. State the obligations that have to be settled and debts to be paid.

Common items include credit card debts, mortgage debts, and student loans.

Find the total value of all liabilities.

• Determine the Net Worth

Net worth is calculated by deducting total liabilities from total assets.

How to Create a Personal Income Statement

• List all Money Received from Various Sources

Determine the amount of money coming in from various sources. This usually includes regular income received monthly.

• List all Expenses

Make a list of all monthly spending. Start with fixed costs before moving to variable costs.

• Determine Net Profit or Loss

The net profit or loss can be calculated by subtracting the total monthly expenses from the total income or revenue generated in that month.

Importance of a Personal Financial Statement

Here are some reasons why it is important to create a personal financial statement.

Financial Planning

A personal financial statement is an important tool that can be used for financial planning.

It provides a snapshot of an individual's financial situation at a particular point in time, which can be helpful in making future projections and plans.

The statement can also be used to track progress over time and to identify areas where improvements can be made.

Personal financial statements are essential when filing taxes because they summarize income made throughout the year.

They also provide an idea of possible deductions that can be made to lower an individual’s tax rate.

Loan Application

Personal financial statements are often required when applying for credit, such as a loan or mortgage .

Lenders use the information in the statement to assess an individual's ability to repay the debt and to determine the interest rate that will be charged.

In some cases, a personal financial statement may be used in lieu of a credit report when applying for credit.

Final Thoughts

A personal financial statement can be a helpful tool in managing finances and making future plans.

Personal financial statements include balance sheets to monitor assets and liabilities and income statements to track an individual’s income and expenses.

Details on the assets and liabilities related to an individual’s businesses, any rented items and personal belongings are not included in a personal financial statement.

Personal financial statements can be used for a variety of purposes, including financial planning, overviewing an individual's financial situation, and loan applications.

Personal financial statements must be updated on a regular basis to provide an accurate picture of an individual’s current economic situation.

Personal Financial Statement FAQs

What is a personal financial statement.

A personal financial statement is a report or set of documents that summarizes an individual's financial situation at a particular time.

What is included in a personal financial statement?

A personal financial statement includes information on an individual's balance sheet and income statements. The balance sheet provides a summary of assets and liabilities, whereas the income statement summarizes revenue and costs.

What is excluded from a personal financial statement?

Personal financial statements do not include details of a company’s assets and liabilities, loaned items, and personal belongings.

Why is a personal financial statement important?

It is important because it provides a snapshot of an individual's financial situation at a particular point in time. It can help to identify areas where expenses may be excessive or where there is room to make cuts in order to save money. The statement can also be used to track progress toward financial goals.

What does a personal financial statement show?

A personal financial statement shows an individual's assets, liabilities, income, and expenses. It can help to identify areas of financial strength and weakness and to track progress over time.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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Statement of financial position

How to use afca’s statement of financial position.

Completing a Statement of Financial Position is an important step in helping you to talk with your financial firm and AFCA about your current financial position. This is different to a Statement of Financial Circumstances, which is completed by dependants of a deceased superannuation fund member to show an interdependency relationship.

A Statement of Financial Position is a secure online form that you can complete, which records key information on your current financial situation and how you propose to repay your debts. The form generally takes 10–15 minutes to complete.

You only need to enter your financial information and the electronic form will do the calculations for you. The form will also step you through a series of options to help you work out what kind of help you might need.

You need to know:

• what you earn
• what you owe
• what your living expenses are
• what you own.

When you complete the electronic form, save the final form (which will be a PDF document) on your computer or device.

You can then provide the completed form to your financial firm or anyone else who is helping you, such as a financial counsellor.

If you make a complaint to AFCA, we will ask you for a copy.

Open the online Statement of Financial Position

You can also download  PDF  or Microsoft  Word  versions of the Statement of Financial position

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Trump Media Merger Provides Trump a Potential Cash Lifeline

Having closed the merger of his social media company, Mr. Trump could find ways to raise cash against the value of his stake in the company, estimated at more than $3 billion.

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By Matthew Goldstein

Former President Donald J. Trump’s social media company — and the parent of his favorite communications platform, Truth Social — became a public company on Friday through a merger that will raise Mr. Trump’s wealth by billions of dollars and potentially help pay his mounting legal bills.

Trump Media & Technology Group is poised to debut on Wall Street at a market value of around $5 billion — based on the $37 share price of its merger partner, Digital World Acquisition Corp. Given that Mr. Trump owns more than 60 percent of the company, his overall net worth will increase by $3 billion — instantly doubling his wealth from the $2.6 billion estimate by Forbes magazine in October.

So far, those gains are on paper, and Mr. Trump is unlikely to be able to quickly turn it into cash because of restrictions in the merger agreement that prevent major shareholders from selling shares for at least six months, or using them as collateral for loans. But because Mr. Trump controls so much of Trump Media, and because his allies are expected to make up a majority of the new board, they could waive those restrictions on his request.

The question of where Mr. Trump can raise cash has become an urgent one because he is on the hook for hundreds of millions of dollars of legal bills tied to the multiple cases against him. Mr. Trump is facing a Monday deadline to cover a $454 million penalty in a civil fraud case brought by the New York State attorney general, which accuses him of greatly inflating the value of his real estate holdings in deals with banks.

If Mr. Trump cannot come up with the cash or a bond to cover the penalty while he appeals the ruling, the attorney general’s office could seize some of his properties.

Trump Media’s board might be reluctant to allow Mr. Trump to sell shares early as that would likely deflate the company’s share price. But lifting the restriction on using shares as collateral would help him secure a bond and minimize the negative impact on the stock price.

Before the merger closed, Mr. Trump was chairman of Trump Media but neither it nor Digital World disclosed whether he will continue to retain the title. Either way, Mr. Trump will hold enormous sway over the company as the company’s new seven-member board includes Mr. Trump’s eldest son, Donald Trump Jr., and three former members of his administration. His 79 million shares give him a large majority stake in the company and his brand is critical to the success of Truth Social, which has become his main megaphone with communicating to his supporters.

There is no guarantee that the stock of Trump Media will continue to trade at its current levels. If the share price falls over the coming months, the sizable increase to his net worth could be smaller over time. Digital World’s shares dropped about 14 percent after the shareholder vote approving the merger.

As part of the merger, investors in Digital World — the cash-rich shell company that voted to merge with Trump Media — will now become shareholders of Mr. Trump’s three-year-old company. The deal will transfer more than $300 million from Digital World’s coffers to Trump Media, a struggling business with little revenue, and allow Truth Social to keep operating.

Shares of Trump Media could begin trading on the stock market as early as Monday under the stock symbol DJT.

Many of Digital World’s 400,000 shareholders are ordinary investors and fans of Mr. Trump, whose enthusiasm about the former president has propped up the shares for years. But it remains to be seen whether they will hold on to the stock now that the merger is done.

In a statement before the vote, Trump Media said that “the merger will enable Truth Social to enhance and expand our platform.”

With the future of his real estate business in flux because of the ruling in the New York civil fraud case, Trump Media could become one of Mr. Trump’s main moneymakers — and a potential source of conflict should he win the presidency in November. Trump Media currently gets most of its revenue from Truth Social, its flagship platform where several upstart companies advertise their products, targeting Mr. Trump’s supporters and using slogans that are variations on America First or Make America Great Again.

In using the stock symbol DJT, Trump Media is taking a trip back in time. One of Mr. Trump’s former publicly traded companies, Trump Hotels and Casino Resorts, had traded under that stock symbol until it filed for bankruptcy in 2004.

The merger of Digital World and Trump Media, first proposed in October 2021, is one of the more prominent deals to emerge from a strategy that many companies used to go public that was all the rage during the pandemic. Special purpose acquisition companies like Digital World are speculative investment vehicles set up for the purpose of raising money in an initial public offering and then finding an operating business to buy.

In going public through a SPAC merger, Trump Media is following other so-called alt-right businesses like Rumble, an online video streaming service that caters to right-leaning media personalities, and PublicSquare, which bills itself as an online marketplace for the “patriotic parallel economy.”

Trump Media took in just $3.3 million in advertising revenue on Truth Social during the first nine months of last year, and the company, during that period, incurred a net loss of $49 million.

“It’s unclear to me what is the strategy to building out the platform especially so it may reach a broader advertiser,” said Shannon McGregor, a professor of journalism and media at the University of North Carolina. “There does seem to be a ceiling in these niche markets.”

The merger was almost derailed by a Securities and Exchange Commission investigation into deal talks between the two companies that took place before Digital World’s initial public offering. Securities rules prohibit SPACs from engaging in meaningful merger talks before going public.

But the deal got back on track after Digital World settled with the S.E.C. in July, agreeing to pay an $18 million penalty after the merger was completed and to revise its corporate filings.

After the deal was done on Friday, many shareholders and Trump fans celebrated online. Chad Nedohin, a vocal proponent of the merger on Truth Social, posted a livestream of the shareholder meeting on Rumble. In a chat room, viewers shared their enthusiasm for the deal, with messages such as “Great day to be alive” and “The day is finally here.”

Matthew Goldstein covers Wall Street and white-collar crime and housing issues. More about Matthew Goldstein