A personal financial statement is a document that summarizes an individual’s assets and liabilities. It serves as an excellent tool for evaluating your current financial situation, setting objectives for the future, and calculating how much money should be saved for retirement or other major expenses.
How Are Personal Finance Statements Beneficial?
A personal financial statement should reflect an individual’s net worth, which is the sum of assets minus liabilities. This number reflects how well their finances are doing and can help determine eligibility for loans or other forms of credit. If someone’s total assets exceed their liabilities, they have a positive net worth.
Assets – These are items that provide money to an individual on a regular basis, such as stocks, property, business ownership, and investments. Liabilities – On the other hand, liabilities refer to debts, unpaid bills, and overdue taxes.
When creating a personal financial statement, the first step is to list all of your assets. This includes everything from home and car, as well as retirement savings accounts.
Next, add up all of your income sources such as salaries, commissions, interest from investment accounts, passive income (interest on savings accounts and bonds), and tax refunds. Be sure to also include expenses like utility bills, insurance premiums, and groceries purchased each month.
Additionally, you should include other expenses that you pay regularly like student loans, medical bills, car repairs, and gas. Listing all these costs helps you keep track of where your money goes each month.
Create a budget for your spending and stay within the monthly limits set on expenses. Additionally, this can assist in identifying areas in life where you could potentially reduce costs or save more money.
A balance sheet – This is the most fundamental section of your personal financial statement and it displays assets and liabilities in a table format. The most valuable assets should be listed at the top row, while those considered least valuable at the bottom. A balance sheet can serve as a great starting point when creating your personal financial statement, though it should be updated over time as income and expenses alter.
Personal balance sheets are an effective tool for tracking all purchases and expenses, particularly helpful for those who tend to forget where their money goes each week. Furthermore, they serve as a great way to monitor savings – something which may be difficult to do on a monthly basis.
Personal financial statements are user-friendly and easy to create and update, making them accessible to people of any age or level of knowledge. If you’re not sure where to begin, a financial advisor can guide you through the process and teach you how to construct your own statement. Furthermore, they’ll assist in developing an overall financial plan strategy, so be sure to enlist their assistance as needed.
