Everything about the personal financial statement

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By keeping an eye on your finances, you can create a secure and fulfilling future. This is where a personal financial statement comes in. Basically, a personal financial statement provides an overview of your financial situation at all times. It can help you be successful in various aspects of your life.

Why do you need a personal financial statement

There are several reasons why you can create a personal financial statement. It can help you if you want to:

  • Take a loan.
  • Apply for financial assistance.
  • Make a guarantee.
  • Design a plan for retirement, estate, education savings, or other financial plans.
  • Rent a commercial office or other types of business space.
  • Develop strategies to reduce your tax burden.
  • Candidacy for a public office.
  • Keep track of your credit.

Ideally, your personal financial statement will show that you have positive net worth and that your assets are greater than your liabilities. It can help you position yourself as a responsible borrower and someone who knows how to manage their money well. It can also prove that you are successful with your finances.

How a personal financial statement can change your financial habits

A personal financial statement can be a determining factor in how you view and manage your money. Here’s why: When you see your net worth, you’ll realize that many of your past and future behaviors affect that number. It lets you know if you are on track to reach your financial goals. A high and positive net worth, for example, can mean that you are closer to your dream of:

  • Buy a dream home or rental property.
  • Early retirement.
  • Work part time rather than full time so you can spend more time with your family.
  • Donate more money to a cause or organization that you value.
  • Fund your children’s college.

Low or negative net worth can wake you up. This might be exactly what you need to change your behaviors and be more careful with how you spend your money. You may be more likely to get out of debt, find a side job, and stay on a budget if you aren’t happy with that number.

What is included in a personal financial statement

The three main elements of your personal financial statement are:

Balance sheet

Your balance sheet is a snapshot of your personal net worth and lists all of your assets and liabilities. Assets can include your home, car, savings accounts, and investment accounts. Liabilities, however, can be your mortgage, auto, student loan, and credit card balances. Your balance sheet will show the difference between the total value of your assets and the total amounts you owe on your liabilities. It’s a great representation of your net worth.

income statement

Your income statement will include your salary, bonuses and commissions. If you have other income from interest, secondary employment, or dividends, you will need to include this information as well. Your income statement will also show your insurance premiums, income taxes, and any other consistent cash outflows you may have. With your income statement, you can determine if you are spending more than what you earn and what you can do to improve the way you spend money.

Statement of cash flows

A cash flow statement shows how you spend your money. It divides your money into three main categories: fixed expenses, non-discretionary, variable expenses, non-discretionary and discretionary or play money expenses. It fills the information gap in the balance sheet and the income statement. You can use a cash flow statement to determine if you are on the right track to building wealth and achieving your goals.

What to exclude from a personal financial statement

Now that you know what’s included in personal financials, let’s discuss what they should exclude. Your personal financial statements will not contain any business related assets or liabilities. The only exception is a personal loan for your business or any other tool for which you are directly responsible.

Your personal financial statements should not include anything you lease or personal effects like household items or furniture, as their values ​​are rarely high enough to be considered assets.

How often should you update your personal financial statements?

Once you prepare your personal financial statements for the first time, your job is not done. Since your finances will likely change regularly, your personal financial statements need frequent updates. It is essential to review and modify your statements every month or every two months. This way, you will always be aware of your financial situation and can adjust your spending and saving habits as needed.

Personal financial statement vs. business financial statement

The financial statements of companies generally consist of an income statement and a balance sheet. As noted, personal financial statements include a balance sheet, income statement, and statement of cash flows.

With a business financial statement, you can start or grow your business and get small business loans to help you do so. However, personal financial statements focus on your personal life and can help you achieve your personal financial goals, like buying a home, retiring, or sending your kids to college.

Ways to increase your net worth

Your net worth is basically the value of your assets relative to your liabilities. You can have a lot of assets and have a lot of liabilities, which means you don’t have high net worth. On the other hand, you can have minimal assets but no liabilities and strong net worth.

So what is ideal net worth? It depends on your age, your unique lifestyle, and your comfort level. There is no specific number that everyone agrees with. However, you can use a formula developed by Thomas Stanley and William Danko, authors of the book “The Millionaire Next Door,” to get a feel for your net worth situation. The formula is net worth = AgeXPretax Income / 10. If your pre-tax income is $ 60,000 and you’re 35, for example, your ideal net worth would be $ 210,000, using this formula.

Of course, this is just one way to look at your net worth and doesn’t necessarily mean you’re having trouble with your finances if you’re below the $ 210,000 mark. It all depends on what kind of net worth you feel comfortable with.

If your personal financials prove that your net worth is negative or less than you would like it to be, don’t worry. There are many ways to get a positive number or higher. Here are several suggestions.

  • Reduced expenses: The less you spend, the more you can use to save and invest. Take a look at your budget and figure out where you can cut or eliminate expenses. If you rarely use that gym membership, for example, cancel it. If you tend to overspend at restaurants, cook more meals at home. Remember that even a few dollars here and there can add up and increase your net worth in the long run.
  • Look for new sources of income: If your 8 to 5 job isn’t paying enough, don’t be afraid to make money through other opportunities. Depending on your schedule, preferences and interests, you may want to take on a second job or self-employment. Or maybe you have a lot of items that you don’t need or want anymore that you can sell on Craigslist or Facebook Marketplace.
  • To buy a house: If you are a current tenant, save for a house may be a good option. Your mortgage payments can help build equity, which can increase your equity. If you are looking for home ownership, be sure to pick a home that is within your means or below. Otherwise, it can become a liability rather than a wealth building tool.
  • Build an emergency fund: Unfortunately, life does come and your car may break down or your roof may need to be replaced when you least expect it. In these situations, it helps to have an emergency fund. With an emergency fund, you can cover these unexpected expenses and avoid going into debt. Most financial experts recommend three to six months of savings in an emergency fund.
  • No longer have debts: While this is easier said than done, do your best to reduce or eliminate your debt. This includes your student loans, mortgage, credit card debt, car debt, and other places you make monthly payments.
  • Invest: The sooner you start investing, the better. Once you have an emergency fund, make your money work for you by investing. You may want to consider some investment vehicles, including a 401 (k), Roth IRA, Traditional IRA, and 529.
  • Rest assured: Insurance can protect you financially when and if the going gets tough. Life insurance, auto insurance, and health insurance are important investments that can protect your financial future (and that of your family).

How to prepare personal financial statements

If you want to prepare personal financial statements, you have two options. You can go the DIY route and complete them yourself. Fortunately, there are plenty of free and paid templates available to walk you through the process.

Another option is to consult a financial advisor or hire a financial coach to help you. They can provide you with the expert advice you need to make sure your personal financial statements are complete and accurate. Even if you create your own statements, a financial advisor can review them and give you the peace of mind of knowing that it’s in good shape.

A financial advisor can also help you increase your net worth. Once they learn more about your particular situation, they can make appropriate recommendations and point you towards a healthier, happier financial future.


Brian Thorp is the Founder and CEO of Wealthtender, a leading personal finance website that helps thousands of people every month find the best financial advisors, coaches, and educational resources to enjoy life with less financial stress.



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