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What is a Personal Financial Statement?
A personal financial statement is a document that lists your assets and liabilities. It also shows your net worth, which is your balance after subtracting all your liabilities from your assets.
Your net worth can either be positive or negative. It is important to note that the personal financial statement does not include any business assets.
Components of a Personal Financial Statement
Preparing a personal financial statement helps you understand your finances and how to improve them.
It will also help you understand how much of your money is going to your expenses and how much is going to your assets.
This way, you can apply the positive cash flow to pay off your liabilities and buy more assets, increasing your net worth.
A personal financial statement is a snapshot of your financial position, consisting of a balance sheet and an income flow section. It will show your current net worth, total assets, and liabilities.
The assets section will show the total value of your assets, including liquid assets, such as bank accounts and stock investments, as well as real estate.
On the other hand, the liabilities section will show all your debts and obligations, including credit cards, mortgages, and unpaid taxes.
Depending on your situation, you may need a personal financial statement to obtain loans or enter into investment transactions. If you are an investor in a closely held company, a bank may require this report to verify that you can repay the loan.
Similarly, a lender may require this report if you are a new investor. If you are considering creating a personal financial statement, you should consult several financial professionals. You can also get help from a CPA specializing in personal financial statements.
The income statement should include all of your income sources and expenses. All everyday expenses should be listed. Make sure to separate variable and fixed expenses so you can monitor them.
Finally, your expenses section will contain your monthly bills and interest from savings accounts and investments. It would be best if you also had a balance sheet showing your possessions.
When compiling a personal financial statement, remember to be honest about your total income and total debts.
Negative net worth can be a red flag for lenders because it could indicate that you are a risky borrower. Intentionally modifying a personal financial statement is illegal and can result in fines and even imprisonment.
Common Assets
The first step in compiling a personal financial statement is identifying your assets. Assets include any property you own and any money that you owe others.
They include real estate, stocks and bonds, and savings accounts. Importantly, these assets must be owned by you.
You can determine whether your assets cover your debt by comparing them to your total assets. If you have a student loan, for example, your student loan dwarfs the value of your other assets, creating a negative net worth.
Similarly, if you have any unpaid debt, you can compare your current monthly payments with your total assets.
Other forms of assets include real estate and life insurance policies. Your home may have equity, which is the property’s value minus your mortgage. For example, a home worth $200k with an $80k mortgage has $120,000 of equity.
You can also have personal items worth money, such as furniture or jewelry. However, it’s difficult to determine their value because they could sell for more or less than the appraised value.
Your financial statement should include your full legal name, address, phone number, and other contact information.
This helps identify who you are and what your financial status is. If you’re a business owner, you might also include the name of your business.
Finally, you should include a balance sheet detailing your assets and liabilities. This will help you calculate your net worth.
Common Liabilities
When creating a personal financial statement, you’ll want to include your current assets and debts. Your assets include all your cash, other available resources, and any money you owe others.
These assets can also include real estate, but you should include its current value. Liabilities are all of the money you owe others and institutions. They can also include taxes that you haven’t paid.
The first section of your financial statement should include your current assets and liabilities. Your assets will include any real estate, investments, and savings.
In addition, you can include your credit card balances and any loans you might have. The total of your assets and liabilities will help you determine whether you’re on track to make payments on these items.
In addition to assets, you’ll also want to list your debts and other obligations for the following year. These are commonly referred to as “current liabilities” because they’re the obligations that you’ll have within a year. You’ll want to use a conservative approach when valuing your assets and debts since you’ll be comparing the size of each item in your financial statement to the amount owed.
Liabilities can be classified as either secured or unsecured debt. Secured liabilities require collateral to satisfy them. A mortgage, for example, is a typical example of a secured liability. If you don’t pay back your mortgage, the lender will be able to seize your asset, such as your home.
Another vital thing to consider when creating a personal financial statement is your total net worth. Your net worth is the sum of all your debts and assets.
If you have a significant amount of money, you might have a lot of assets. But if you have no liquid assets, you might as well include them in the liability section.
Keeping a Personal Financial Statement Regularly
Personal financial statements provide a snapshot of your financial health and are essential for keeping track of your finances.
They are handy when applying for credit or changing your current situation. Knowing where you stand financially helps you avoid unnecessary credit inquiries and the hassle of being denied a loan.
The statements also help the credit officer make informed decisions, which can help you secure the credit you need. Depending on your situation, you might also be asked to put up collateral or provide a personal guarantee on the part of a loan.
A personal financial statement can help you reach goals like paying off debt and saving money for specific goals. It can also help you stay motivated by seeing your progress over time. It is also a great way to monitor your financial situation and make informed decisions about how you spend your money.
When preparing your financial statement, list all your income and expenses. This should include your salary from work, as well as any other sources. List other regular income, such as interest on your accounts or rental income, which would be best. If you have any savings, you can include them as well.
Personal financial statements should be updated regularly, so you can see how you’re doing financially and track your progress toward your goals. By keeping track of your assets and liabilities, you can easily see where you can make improvements and make more money. It’s important to note that personal financial statements are not a substitute for legal, tax, or investment advice.
Personal financial statements should contain your full legal name, mailing address, phone number, and other personal information.
It also includes your net worth, assets, and liabilities. When completing a personal financial statement, sign the financial statement and verify the information you’ve entered.
In addition to signing the document, you should include your social security number and legal name. If you’re looking for a loan, you can also include the name of the business you are seeking to fund.