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• Finance Personal Statement Examples

Here are two finance personal statement examples from some of the best students in undergraduate and postgraduate programmes. Both examples you can use as inspiration and motivation to write your own personal statement for university . 

Finance Personal Statement

Ever since I discovered my passion for the finance industry at a young age, I have been determined to pursue a career as a financial consultant and advisor. It is this unwavering ambition that has led me to apply for the MSc course in Finance at the esteemed London School of Economics and Political Science (LSE). I firmly believe that this course will provide me with the necessary tools and knowledge to achieve my career goals by expanding my understanding of financial products, the intricate workings of financial markets, and investment banking.

The reputation of LSE as a university of academic excellence is one of the key reasons for my decision to apply. I am aware of the university’s ability to equip students with critical analysis skills that are essential for becoming leaders in their chosen sectors. Moreover, being located in the heart of London provides unparalleled opportunities for networking and professional development in the world of business and finance. The course’s comprehensive approach, which strikes a balance between theoretical and practical modules, is also highly appealing to me.

My educational background in accounting has laid a solid foundation for my advanced studies in finance. Through my coursework in accounting, I have developed strong numerical skills and gained practical experience in management accounting and reporting roles within financial firms. It was during my studies that I discovered a particular interest in Strategic Financial Management, where I was introduced to financial products such as equities, derivatives, fixed income, and bonds, along with their significance in financial markets. Building on this knowledge, I have become a qualified accountant and have gained valuable work experience as an Associate at Deloitte, where I am part of the project management team, responsible for decision support. This role has honed my ability to work under pressure and within tight time constraints, allowing me to meet urgent and conflicting deadlines.

To stay up-to-date with the dynamic financial market, I avidly follow financial news through subscriptions to reputable media platforms such as the Financial Times, the Economist, and Bloomberg. Additionally, I engage in various hobbies such as travelling, watching movies and documentaries, and reading to broaden my knowledge and stay informed about current affairs. As a sports enthusiast, I follow tennis, football, boxing, and Formula One racing. These diverse interests have cultivated qualities such as ambition, intuition, focus, and self-discipline, which drive me to excel in any endeavour. I value the input and opinions of others, making me an effective team player, while also possessing the independence and initiative to work autonomously. I firmly believe that these qualities will contribute to my success as a finance analyst and enable me to excel academically.

Looking toward the future, I aspire to establish a reputable financial consulting firm in my home country, Nigeria. This firm would provide a range of financial services to both companies and public institutions. I recognise that achieving this goal will require years of experience, cultivating the right connections, and personal determination. Pursuing an MSc in Finance from LSE will better equip me to manage corporate, strategic, and financial opportunities, while also providing the opportunity to learn from talented professors and compete with exceptional graduates. I am convinced that this course is a crucial step toward realizing my long-term aspirations.

The increasingly evident impact of financial risk on our world has captivated my interest like never before. The interplay between the financial sector, government, and the general public dominates news stories, emphasizing the significance of understanding the industry. With my passion for finance nurtured from an early age, I have dedicated myself to attaining a comprehensive understanding of both the theoretical and practical aspects of global finance through high-level studies and extensive work experience in diverse industrial and international contexts.

Currently, in my fourth year of a degree in Finance, Risk, and Investment at Caledonian University, I have developed a strong foundation of knowledge in the field. Moreover, I have delved deeper into specific areas

Finance Personal Statement Example

Since my early years, extensive international travel has shaped my perspective on the world, particularly the stark economic contrasts between the ‘Third World’ and the ‘Western World.’ Having the privilege of experiencing different cultures and economies through my parents, who have lived in Africa, Europe, and the USA, I have developed a deep curiosity about the mechanisms that drive global economies. This curiosity has led me to pursue Economics at A Level, as I believe it is at the core of world discussions and can provide a comprehensive understanding of current news articles and their correlation to the subject.

Through my readings, such as Tim Harford’s ‘The Undercover Economist,’ I have come to appreciate the analogy that economics is like engineering, offering insights into how things work and the consequences of changing them. I see economics as an intricate puzzle, requiring economists to integrate economic theories with government policies to solve complex economic problems. Attending conferences at prestigious institutions like the University of Warwick and Oxbridge has broadened my perspective on economics, with theories like Freakonomics intriguing me and sparking a desire to explore the unexpected links between seemingly unrelated phenomena.

My passion for economics is complemented by a strong affinity for mathematics , which has been nurtured since my childhood. From playing mental maths games to tackling complex problem-solving at A Level, I have developed analytical abilities that were put to the test during a taster day at Cass Business School. Through quick thinking and effective teamwork, I excelled in a trading shares simulation, resulting in my group being the most profitable. Furthermore, my participation in a business management enterprise day at the University of the West of England allowed me to showcase my skills, leading to the recognition of the ‘Best Business Idea.’

To gain practical experience in the finance sector, I sought work opportunities that would provide me with invaluable insights. My time at Britannia Building Society exposed me to the inner workings of retail banking, allowing me to shadow the branch manager, work closely with financial planning advisors, and handle transactions at the tills. This experience introduced me to financial assets, including options for investing in bonds, shares, and increasing savings. Additionally, working at Harrison’s Accountancy and Insolvency Agency gave me valuable knowledge about liquidations and insolvencies of businesses, further solidifying my interest in pursuing a career in finance.

Staying updated with current financial affairs is crucial to me, and I regularly read the economy sections of reputable sources such as the BBC website and The Economist. Subscribing to a weekly update from RBS provides me with topical developments in the financial markets. Alongside my commitment to academic and professional pursuits, I have also developed essential skills through my job at O2 Retail. This experience has sharpened my interpersonal skills and honed my ability to negotiate mutually beneficial deals for both customers and the company. As a captain of my football team, I have learned the value of leadership, motivation, and maintaining high team morale, skills that have translated into success in class debates and the trading shares simulation at Cass Business School.

During a recent trip to Switzerland, I had the opportunity to meet with the assistant vice president at Credit Suisse, who shared insights into exchange rate processes within a leading investment bank. These conversations further solidified my understanding of the close relationship between economics and the finance sector.

Through a comprehensive study of Level Economics and practical experiences, I have been able to bridge the gap between theory and real-world situations. Engaging with professionals in the field has deepened my appreciation for the vital connection between economics and finance. I am confident that pursuing a university education will equip me with the necessary knowledge and skills to navigate the dynamic and fast-paced world of financial markets.

My passion for finance and economics was sparked by the Lehman Brothers’ bankruptcy and the subsequent financial crisis when I was 21 years old. The events of that

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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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• Personal Financial Statement

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on November 15, 2023

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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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What Is Personal Financial Statement: A Comprehensive Guide

Wajiha Danish | August 17 2023

Managing your finances is crucial for achieving financial stability and long-term goals. One of the fundamental tools at your disposal is the personal financial statement to assess your financial health and make informed decisions. In this in-depth blog, we will delve into the intricacies of evaluating your financial statement, helping you better understand your financial position and charting a course toward a more secure future.   

Understanding the Personal Financial Statement   

A blank personal financial statement is a snapshot of your financial situation at a specific time. It outlines your assets, liabilities, and net worth. Let’s break down each component:   

Assets encompass everything you own that holds monetary value. It includes cash, investments, real estate, vehicles, personal belongings, and more. Categorizing and valuing your assets is essential for a realistic assessment.   

2. Liabilities

Liabilities represent your debts and financial obligations. It includes credit card debt, loans, mortgages, and outstanding payments. Identifying your liabilities is crucial to gauge your financial obligations accurately.   

3. Net Worth

Net worth is calculated by subtracting your total liabilities from your total assets. It is a key indicator of your financial health and can help you understand whether you’re building wealth or accumulating debt.   

Assessing Your Financial Goals   

Before diving into the evaluation process, establish clear financial goals. These could include saving for a down payment on a house, paying off debt, funding your children’s education, or retiring comfortably. Understanding your goals will guide your assessment and help you allocate resources accordingly.   

Evaluating Your Financial Statement   

1. accuracy and completeness.

Begin by ensuring that your blank personal financial statement is accurate and comprehensive. Update it regularly to reflect your current financial position and ensure you haven’t omitted any assets or liabilities.   

2. Liquidity

Liquidity refers to your ability to access cash quickly without incurring significant losses. Evaluate how much of your assets can be easily converted to cash, such as savings accounts, money market funds, and liquid investments. A healthy liquidity ratio ensures you can handle unexpected expenses or capitalize on opportunities. 

3. Debt-to-Income Ratio

Your debt-to-income ratio measures the percentage of your monthly income for servicing debt. A high ratio indicates that a significant portion of your income is tied up in debt payments, which could affect your ability to save and invest. Strive for a manageable debt-to-income ratio to maintain financial flexibility.   

4. Net Worth Growth

Regularly monitor your net worth to track your financial progress. A growing net worth suggests effective financial management, while a declining net worth may necessitate adjustments to your spending, saving, or investment strategies.   

5. Emergency Fund

Evaluate the adequacy of your emergency fund, which acts as a safety net during unforeseen events like medical emergencies or job loss. A good rule of thumb is to save three to six months’ worth of living expenses in an easily accessible account.   

6. Investment Portfolio

Assess the composition of your investment portfolio. Diversification across different asset classes helps manage risk and potentially enhance returns. When reviewing your portfolio, consider your risk tolerance, investment horizon, and financial goals.   

7. Retirement Planning

Analyze your retirement savings and contributions to retirement accounts such as 401(k)s or IRAs. Use retirement calculators to estimate if your current savings rate will provide the income you need in retirement.   

8. Budget Analysis

Compare your monthly income and expenses to identify areas where you can cut back or allocate more funds toward your financial goals. A detailed budget can help you make informed spending decisions.   

9. Tax Efficiency

Examine your tax strategies to minimize tax liabilities. Maximize the use of tax-advantaged accounts and consider tax-efficient investment strategies.   

10. Professional Guidance

If navigating your blank financial statement seems overwhelming, seek guidance from financial advisors or professionals. Their expertise can provide valuable insights and help you create a personalized plan. 

Steps for Effective Personal Finance Planning and Management   

Effective personal finance planning and management is crucial for achieving financial stability, reaching your goals, and building wealth. Here’s a detailed step-by-step guide to help you navigate this process:   

1. Set Clear Financial Goals

Start by defining your short-term, medium-term, and long-term financial goals. These could include saving for a vacation, buying a house, paying off debt, building an emergency fund, or planning retirement.   

Make your goals specific, measurable, achievable, relevant, and time-bound (SMART).   

2. Assess Your Current Financial Situation

Gather all your financial information, including income sources, expenses, debts, assets, and investments.   

Create a net worth statement to understand your financial health – assets minus liabilities.   

3. Create a Budget

Develop a detailed budget outlining your monthly income and all expenses, including fixed and variable costs.   

Prioritize essential expenses (housing, utilities, groceries) and allocate a portion of your income to savings and investments.   

4. Track Your Spending

Use budgeting tools, apps, or spreadsheets to monitor your spending habits.   

Regularly review your expenses to identify areas where you can cut back and save more.   

5. Manage debt

Prioritize paying off high-interest debts, such as credit cards, as quickly as possible.   

Consider consolidating or refinancing debts at lower interest rates.   

Avoid taking on unnecessary debt and use credit responsibly.   

6. Build an Emergency Fund

Save three to six months’ living expenses in an easily accessible account.   

This fund acts as a safety net in case of unexpected expenses or job loss.   

7. Save and Invest

Contribute to retirement accounts (401(k), IRA) and use any employer matching.   

Diversify your investments across various asset classes (stocks, bonds, real estate, etc.) to manage risk.   

Regularly contribute to investment accounts and take advantage of compounding returns.   

8. Plan for Major Expenses

Set up separate savings accounts for specific goals (e.g., car buying, home down payment, education).   

Allocate a portion of your budget towards these savings goals.   

9. Review and Adjust

Regularly review your budget, financial goals, and investment portfolio.   

Adjust your plan as needed based on income, expenses, or goals changes.   

10. Educate Yourself

Stay informed about personal finance concepts, investment strategies, and tax implications.   

Attend financial literacy workshops, read books, and follow reputable financial experts.   

11. Insurance and Estate Planning

Ensure you have adequate insurance coverage, including health, life, and disability insurance.   

Create or update your will, designate beneficiaries, and establish a power of attorney and healthcare proxy.   

12. Minimize Taxes

Optimize your tax strategy by taking advantage of tax-advantaged accounts and deductions.   

Consult a tax professional to ensure you’re making informed decisions.   

13. Seek Professional Advice

Consult a certified financial planner (CFP) or financial advisor to help you create a comprehensive financial plan tailored to your goals and circumstances.   

14. Practice Discipline and Patience

Stick to your budget and financial plan over the long term.   

Avoid impulsive spending and emotional decisions regarding investments.   

15. Celebrate Milestones

Celebrate your financial achievements and milestones to stay motivated on your journey to financial success.  

Remember that personal finance is a continuous process, and adjusting as your circumstances change is okay. By following these steps and staying disciplined, you’ll be well on your way to effective personal finance planning and management.   

Evaluating your blank personal financial statement is a fundamental step toward achieving financial well-being. Regular assessment of your assets, liabilities, and net worth, along with a thorough analysis of your financial goals, provides a comprehensive view of your financial health. By understanding key indicators such as liquidity, debt-to-income ratio, net worth growth, and investment portfolio, you can make informed decisions to secure your financial future. Remember, financial success is a journey, and continuous evaluation and adjustments are essential to stay on the path to achieving your goals. For more information and new insights on ongoing accounting and financial topics, contact Monily at [email protected] or visit www.monily.com.  

Also Read: Accounts Receivable Turnover Ratio – Key To Better Finances

Wajiha is a Brampton-based CPA, CGA, and Controller with 17+ years of experience in the financial services industry. She holds a Bachelor of Science Degree in Applied Accounting from Oxford Brookes University and is a Chartered Certified Accountant. Wajiha spearheads Monily as its Director and is a leader who excels in helping teams achieve excellence. She talks about business financial health, innovative accounting, and all things finances.

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• Financial Planning

What Is a Personal Financial Statement?

• Definition and Examples

How Does a Personal Financial Statement Work?

Do i need a personal financial statement.

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A personal financial statement is a physical snapshot of your assets compared to your liabilities. It gives you a real-time view of your wealth and helps you assess your current financial situation. While it's beneficial for your own financial growth, lenders may ask for a personal financial statement if you’re applying for a loan

Key Takeaways

• A personal financial statement is a document that lists all your assets, liabilities, and resulting net worth.
• Personal financial statements can be used by individuals and businesses.
• A personal financial statement is important because it shows you if you’re building wealth, and can play a critical role in helping you get approved for loans.
• The most efficient way to keep your personal financial statement up-to-date is to use budgeting software that tracks your net worth for you.

Definition and Examples of a Personal Financial Statement

A personal financial statement is a physical snapshot of your assets compared to your liabilities . It gives you a real-time view of your wealth and helps you assess your current financial situation. While it's beneficial for your own financial growth, lenders may ask for a personal financial statement if you’re applying for a loan

But what are assets and liabilities? Your assets refer to all items you can easily convert to cash, including:

• Bank accounts
• Retirement accounts
• Investment balances
• Real estate
• Personal property with significant value, such as rare art collections, coin collections, antiques, and jewelry

Your liabilities refer to all the debt you owe. They can be:

• Student loans
• Credit card debt
• Car and boat loans
• Loans where you’re the co-signer
• Unpaid taxes
• Medical debt

If your total assets are higher than your liabilities, your personal financial statement reflects a positive net worth . This is a sign that you’re building wealth and signals to lenders that you may be a trustworthy borrower.

If your liabilities are higher than your assets, however, you have a negative net worth. This signals you may be living paycheck to paycheck or spending more than you earn, and you could be seen as a high-risk borrower to lenders.

If you are in a committed partnership or married and share assets, you and your partner can combine assets and liabilities to create a joint personal financial statement.

Suppose you have $200,000 worth of assets. This includes your house, a bank account, and a retirement account. Now let’s say you have $130,000 in liabilities. This includes your mortgage, some student loans , and credit card debt. In this case, your net worth is $70,000.

Here’s an example of how your personal financial statement may look in spreadsheet form:

The Balance

Your personal financial statement will be a lot more complex if you’re creating one for your business. For small business owners, the Small Business Administration (SBA) has a sample personal financial statement you can use as a guide.

Wealth is not defined by the income you accumulate, but by your net worth. A personal financial statement is important because it shows if your net worth is improving or decaying over time. It sheds light on your entire financial picture so you can see if you’re moving closer or farther away from your goals .

For example, suppose your financial goal is to retire early . You’ve officially paid off your debt (minus your mortgage), but you’re not sure how close you are to reaching your retirement goals. You decide to create a personal financial statement to see where you stand.

Below is a guide to how you would fill out your personal financial statement, using the above example.

Step 1: List All Your Assets

Most assets have a clear dollar value (i.e., you can look in your bank account and see what your balance is). But some assets—such as your car, home, or an art collection—may require an appraisal first.

If you’re creating a personal financial statement for a lender, it’s important to be as accurate as possible (and get an appraisal if you’re unsure of the amount). But if it’s just for your own personal records, an educated guess may be fine. This may look like:

• $600,000 in your home
• $150,000 in your 401(k)
• $125,000 in your investment account
• $40,000 in your checking and savings accounts
• $30,000 in your traditional IRA
• $5,000 for your car

Total assets = $950,000

Anything you rent does not count as an asset because you don’t own it. So if you rent a house or lease a car, leave it off your personal financial statement.

Step 2: List All Your Debt 

Your debts are your liabilities. In this example, we’ve stated you’ve paid off all your debt except your mortgage, so that’s the only thing listed here.

• $300,000 on your mortgage

Total liabilities = $300,000

If you pay your credit card bill off in full every month, it’s not considered debt, so don’t include it on your personal financial statement.

Step 3: Subtract the Two Numbers To Get Your Net Worth

In this example, when you subtract the assets from your liabilities, you see that your total net worth is $650,000.

Now, suppose you know you need $1.2 million to reach financial freedom and retire early. Your personal financial statement would show that you’re $550,000 away from your goal. You could then update it again next month to track your progress, and make changes to your spending and saving as needed.

Personal financial statements help individuals understand the overall state of their personal or business finances, and calculate their net worth. They can also be used as a tool when applying for credit such as a mortgage, personal loan, or business loan . To get a snapshot of your financial health, it’s a good idea to create a personal financial statement.

Even if you have a positive net worth, it is not guaranteed you will receive a loan you apply for. Credit history and past debts are also taken into consideration by lenders.

The biggest drawback of personal financial statements is that it’s a frozen snapshot of your financial health at any given time. For it to have a positive impact, you have to update it regularly.

The good news is that there are many online tools you can use to automate your personal financial statement. Two popular options include:

• You Need a Budget (YNAB) : This is a personal finance software with strong financial budgeting features that can automatically track your assets and liabilities for you. As you earn income and pay off debt, your net worth updates in real time.
• Personal Capital : This tool for tracking your net worth acts as more of a wealth management tool, praised for helping you track and optimize investments and spot ways to diversify and manage risk. It connects with more than 14,000 financial institutions and provides a moving snapshot of your net worth.

Clearview Credit Union. " What Is a Personal Financial Statement? " Accessed Oct. 28, 2021.

Personal Capital. " Our Mission: We Transform Financial Lives Through Technology and People ." Accessed Oct. 28, 2021.

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Understanding Personal Financial Statements: A Comprehensive Guide

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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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How to Create a Personal Financial Statement + [Free Template and Sample]

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Do you want to create a personal financial statement, but aren’t sure where to start?

According to Mint.com , over 65% of people have no clue how they spent money last month. So, you can probably be pretty sure even less know how their personal finance situation.

With rising costs for essentials like housing and education due to inflation, there is no better time to get an accurate picture of your current situation today.

If you’re wondering how your finances measure up, a Personal Financial Statement can be an invaluable tool in helping you understand where you stand financially and prepare for changes ahead.

This article will walk through creating a sample personal financial statement template with examples of what this document might look like based on your situation.

A personal financial statement isn’t just for your loan applications anymore, it’s an opportunity for transparency in your finances too!

What is a personal financial statement?

A personal financial statement is a document that summarizes your assets, liabilities, and net worth. A PFS can help you understand your financial health so you can make informed decisions about your money.

A personal financial statement template will typically include three sections:

• Assets: This section will list all of the money and property you own.
• Liabilities: This section will list all of the money you owe.
• Net Worth: This section will calculate your net worth by subtracting your total liabilities from your total assets.

Your personal financial statement should be updated on a regular basis, typically once a year. This will help you track your progress and make sure you’re on track to reach your financial goals.

What are the benefits of creating a personal financial statement?

There are many great benefits of a personal financial statement.

By creating a personal financial statement, you can see at a glance how much money you have coming in, going out, and what your net worth is. This information can be extremely helpful in making financial decisions and setting goals.

Benefit #1 – Understand Your Financial Situation

This is why you must spend the extra couple of minutes to create a personal financial statement form.

Most importantly, you get a better understanding of your financial situation. This includes seeing where your money is going each month and how much debt you have.

What we call around here at Money Bliss – the 1000-foot look from above. The outsider’s perspective of what is going on with your finances.

Benefit #2 – Helps you track your progress

When it comes to personal finance, one of the best things you can do is keep track of your progress.

Tracking your progress should be important to you! By seeing everything laid out in front of you, it becomes much easier to make informed financial decisions that will help improve your overall financial picture.

Benefit # 3- Find some areas of improvement

Since a personal financial statement is a document that summarizes your income, expenses, assets, and liabilities in one place it helps you see the financial big picture. Thus, spotting areas for improvement are easier.

For example, if you see that you are spending too much money on non-essential items, you can make changes to improve your financial health.

Benefit #4 – Useful Tool to Set Goals

Next, it can help you set goals. Once you see where you stand financially, you can set goals for paying off debt or saving more money each month.

This aids you to make better financial decisions by providing a clear picture of your financial situation.

Benefit #5 – Snapshot to help you stay motivated

Creating a personal financial statement can be incredibly helpful in staying motivated to save money and achieve your financial goals. Seeing your progress in black and white (or, more accurately, green and red) can be a strong motivator to keep going.

Using a personal finance statement is especially helpful if you’re working towards paying off debt or saving for a specific goal. It can be difficult to stay motivated when you’re not seeing progress, but seeing the numbers going down (or up) can give you the boost you need to keep going.

Benefit #6 – Monitor your financial health

Creating a personal financial statement can help you monitor your financial health and make informed decisions about your spending and saving habits.

• If you see that your expenses are consistently exceeding your income, for example, you may need to make some changes to ensure that you are able to meet your long-term financial goals.
• Easier to spot opportunities to save money or invest in assets that will grow in value over time.

Monitoring your financial health on a regular basis can help you avoid debt problems and keep track of your progress toward financial goals.

What are the types of personal financial statements?

A personal financial statement is a form or spreadsheet detailing a person’s overall financial health. This statement is typically used to apply for business loans or other forms of financing. There are two types of personal financial statements:

• The first type is the balance sheet, which lists a person’s assets and liabilities.
• The second type is the income statement, which details a person’s income and expenses.

The balance sheet provides an overview of a person’s financial situation at a particular point in time, while the income statement shows how much money a person has coming in and going out over a period of time.

Both types of statements are important in helping lenders evaluate a borrower’s ability to repay a loan. As well as for you to monitor your personal situation.

What are the components of a personal financial statement?

A personal financial statement is not just a document that shows how much money you have in your bank account. It also includes other important components to show a well-rounded picture.

Most people know that a personal finance statement includes income, assets, and liabilities. But did you know there are actually four main components of a personal financial statement?

A personal financial statement varies from a traditional balance sheet that is used for a company.

Your income is everything you earn in a year from all sources, including your job, investments, alimony, and more.

You should list all of your sources of income on your personal financial statement so you have a clear picture of what you’re bringing in each month.

• Include all sources of income, even if they are irregular or one-time payments.
• List after-tax income.
• If you are married or have a partner, include their income as well.
• Update your income regularly to reflect any changes (e.g., new job, raise, bonus).

This will help you make informed decisions about your spending and saving.

This is the money you spend each month on things like your mortgage or rent, car payments, groceries, and other necessary expenses.

Here are over 100 personal budget categories for various expenses.

Assets are everything you own like your home equity or the value of your car and can use to pay your debts. This includes cash, savings, investments, property, and possessions.

Calculate your total assets by adding up the value of all your cash, savings, investments, property, and possessions.

So, is a car an asset ? Well it depends if there is a loan against it.

Liabilities

Your liabilities are everything you owe money on. This includes, but is not limited to:

• Student loans
• Credit card debt
• Any other personal loans

Your liabilities also include any money you may owe in taxes.

How to create a personal financial statement – Part 1

There are a few key things you need to know in order to create a personal financial statement.

The first part includes what is needed for your net worth – assets and liabilities. The second part includes your current income, expenditures, and savings.

We will show you next how to collect all of this information, then you can start to work on creating a personal financial statement.

Step #1 – Determine your current assets and business profit

The first is your current assets. Your assets are everything you own and can use to pay your debts. This includes your savings, your home equity, and any investments you have. You will need to know the value of all of these things in order to create an accurate personal finance statement.

To determine the value of your assets, start by looking at your savings. This can be any money you have in the bank, including checking, savings, and money market accounts. Add up the total balance of all these accounts to get your total savings.

Next, determine the value of your home equity. This is the difference between what your home is worth and how much you still owe on it. To calculate this, look up the current value of your home and subtract any outstanding mortgage or other loan balances from it. This will give you an estimate of how much equity you have in your home.

Finally, add up the values of any investments you have. These can include stocks, bonds, mutual funds, and other types of investment accounts. Once you have all these values totaled up, this will give you an estimate of your current assets.

Step #2 – Determine your current liabilities

Your current liabilities are all of the debts and financial obligations that you currently have.

This can include things like credit card debt, car loans, student loans, and any other type of loan that you are currently paying off.

To get an accurate picture of your current liabilities, you will need to gather up all of your bills and statements so that you can see exactly how much you owe.

Step #3 – Determine your net worth

Your net worth is your assets – your savings, your home equity, and your stocks and investments – minus your liabilities. To calculate it, simply subtract your total liabilities from your total assets. This will give you your net worth.

Your net worth is a good indicator of your financial health.

It can help you make decisions about saving and investing, and it can also be a useful tool for budgeting. If you want to improve your financial health, focus on increasing your net worth by saving more money and investing in assets that will grow in value over time.

Your goal is to double your liquid net worth quickly.

How to create a personal financial statement – Part 2

Now, you have developed your next worth statement. The next step in creating a personal financial statement is to determine your monthly cash flow of money or annual cash flow.

This second part includes your current income, expenditures, and savings.

Step #1 – Determine your monthly income

Firstly, you will need your income flow section. This could come from your pay stubs, or if you are self-employed, your profit and loss statements.

Your monthly income includes all money that you earn in a month, including salary, wages, tips, commissions, child support, alimony, and any other regular payments that you receive.

Step #2 – Determine your monthly expenses

The next piece is to determine your monthly expenses. This includes things like your mortgage or rent, car payments, credit card bills, and any other regular expenses. You’ll also want to factor in occasional expenses, like doctor’s appointments or annual membership fees.

Your expenses can be divided into two categories: fixed and variable.

Fixed expenses are those that remain the same each month, such as rent or mortgage payments, car insurance, and minimum credit card payments. Variable expenses change from month to month and can include items such as groceries, utility bills, entertainment, and clothing.

Step #3 – Determine your monthly savings

Typically, most advice will leave out monthly savings. However, this. is a critical piece to learning how to FI – financial independence.

Once you have both your income and expense information, you can begin to calculate your monthly savings. To do this, simply take your total income and subtract your total expenses. The remaining amount is what you have available to save each month.

Maybe you just calculated this and realize you have a negative number (meaning you spend more than you earn each month), then you will need to make some changes in order to improve your financial situation.

It is important to note that a personal financial statement is not static.

Your income and expenses can change from month-to-month, so it is important to recalculate your statement on a regular basis. Additionally, as you begin to save more money each month, the amount available for savings will increase as well.

How to use a personal finance statement template

A personal financial statement is a snapshot of your financial health at a given point in time. It lists your assets, liabilities, and net worth so you can see the big picture of your finances.

You can use a personal finance statement template to track your progress over time and make changes to improve your financial health.

Here’s how to use a personal finance statement template:

• Enter your information into the template. This includes details about your income, expenses, debts, and assets.
• Review your numbers and calculate your net worth. This is the difference between your total assets and total liabilities.
• Watch for comparisons. Compare your net worth from one period to another to track your progress over time.
• Make tweaks. Make changes in areas where you want to improve, such as increasing savings or paying down debt.
• Repeat steps 1-4 periodically . Then you can see how well you’re doing and make necessary changes

How to interpret a personal finance statement

A personal financial statement is a document that shows your current financial health. It lists your assets and liabilities, giving you a clear picture of your net worth.

• Positive net worth means you have more assets than debt.
• Negative net worth means you have more debt than assets.

Your personal financial statement will help you to set financial goals and track your progress over time. For example, if you want to become debt-free within five years, you can use your statement to create a budget and track your progress each year.

If you have a negative net worth, don’t panic! You can improve your financial health by paying off debts and building up your savings.

Creating a budget will help you make the most of your income and make headway on your financial goals.

How to use a personal financial statement to make financial decisions?

This is the important piece of becoming a millionaire.

A personal financial statement can help you see where your money is going each month and make changes to ensure that you are saving enough for your future goals.

Way #1 – Look at your current financial situation

Your personal financial statement is a record of your income and expenses over a period of time. This information can be used to make financial decisions, such as whether to save money or invest in a new business venture.

If you are looking to save money, you will want to compare your total income to your total expenses. If your expenses are greater than your income, you will need to find ways to reduce your spending. You may also want to consider investing in a savings account or retirement fund.

If you are looking to invest in a new business venture, you will want to assess your current financial situation. You will need to determine how much money you can afford to invest and whether or not the venture is likely to be successful.

Doing this analysis before making any decisions can help you avoid making costly mistakes.

Way #2 – Determine your financial goals

There are a few key things to keep in mind when you’re determining your financial goals.

First, you need to think about your short-term and long-term goals.

• Your short-term goals might include things like saving up for a down payment on a house or car or paying off high-interest debt.
• Your long-term goals might include things like saving for retirement or sending your kids to college.

Once you’ve determined your goals, you need to think about how much money you’ll need to reach them. This is where a personal financial statement can come in handy.

This information can help you figure out how much money you have available to put towards your financial goals.

Once you have an idea of how much money you need to reach your financial goals, the next step is to develop a plan for how you’re going to save that money. This might involve setting up a budget and sticking to it, investing in a specific savings account or investment account, or taking advantage of employer matching programs if they’re available.

Making smart financial decisions is important for achieving both your short-term and long-term goals. A personal financial statement can help you determine how much money you need to reach your goals, and develop a plan for saving that money.

Way #3 – Make a budget

Your personal financial statement can be a helpful tool when you’re trying to make a budget. This document lists your income and expenses and can give you a clear picture of your financial situation.

To use your personal financial statement to make a budget:

• Look at your overall income and expenses. This will give you an idea of where your money is going each month.
• What are Necessary Expenses? Determine which expenses are necessary and which ones you can cut back on.
• Prioritize your List. Make a list of your monthly income and expenses, with the necessary expenses first. And drop the expenses at the bottom of the list.
• How Much is Left? Determine how much money you have left over each month after paying for necessities. This is the money you can use for savings or other goals.
• Adjust your budget as needed based on changes in your income or expenses.

Way #4 – Invest in yourself

There are a lot of things you can do to invest in yourself, but one of the smartest things you can do is to invest in your personal finance education.

In fact, one of the popular millionaire quotes from Warren Buffet is :

Invest in yourself as much as possible. Warren Buffet

Investing in yourself is one of the smartest things you can do.

Way #5 – Stay disciplined

Making financial decisions can be difficult, but if you have a personal financial statement, it can help you stay disciplined.

A personal financial statement is a document that shows your income, expenses, and assets. It can help you track your spending and see where you can save money. That my friend is black and white information.

Making financial decisions can be difficult, but if you have a personal financial statement, it can help you stay disciplined and on track.

What are some common mistakes to avoid when creating a personal finance statement?

There are many common mistakes people make when creating a personal financial statement. This can lead to an inaccurate picture of your financial situation and make it difficult to make informed decisions about your finances.

Any of these common mistakes can also lead to problems down the road because you will be unable to meet your financial obligations.

• Not including all sources of income
• Not including all debts and expenses
• Forgetting to track new sources of income
• Overstating or understating expenses
• Not properly categorizing expenses
• Forgetting to update (or review) the statement regularly
• Not tracking progress over time
• Too scared to seek professional help if needed.

By avoiding these common mistakes, you can create a personal financial statement that accurately reflects your financial situation and helps you make better decisions about your money.

How often should a personal finance statement be updated?

You should update your personal finance statement at least once a year.

However, you may want to update it more frequently if you have significant changes in your income or expenses. For example, you may want to update your personal finance statement after you get a raise or buy a new car.

A Personal Financial Statement Template Example

A personal financial statement is a document that summarizes your financial health.

It includes information about your income, expenses, debts, and assets. This information can be used to make informed decisions about your finances.

There are many personal finance statement templates available online. Some banks and financial institutions offer their own templates. You can also find templates in our free resource library. Once you find a template you like, you can download it and fill it out with your own information.

When filling out a personal financial statement template, be sure to include accurate and up-to-date information.

This will give you the most accurate picture of your financial health. Review your statements regularly to track your progress and make changes as needed.

Time to Create A Sample Personal Financial Statement

When creating a personal financial statement, it is important to include all sources of income, not just your salary. This includes any freelance work, investments, or other forms of passive income. Additionally, make sure to include any government benefits or assistance you receive.

Excluding all sources of income will give you an inaccurate picture of your financial situation and make it difficult to create a realistic budget.

This is something you need to spend dedicated time doing to create a personal financial statement worksheet.

Over time, this wealth management tool will help you to become the next millionaire.

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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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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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Finance personal statement example 2.

Business and Finance has always been an eye opener for me, whether it’s waking up to the latest financial news headlines to reading books written by the likes of Robert Kiyosaki and Peter F Drucker. My choice of independent study has always been business related, even at a young age. From learning, how businesses are run, to understanding resource management that allows businesses to meet consumer demand whilst expanding into other areas such the financial markets. I have payed extra attention to how current events affect economies and businesses on a global scale such as the United Kingdom leaving the European union and the demonetisation of Rs500 and Rs1000 notes in India.

From amassing such knowledge and information about businesses and economies, I fell towards studying how finance is used by economic agents in terms of investing capital into financial schemes such as shares and properties. I then went on creating several demo accounts with brokers to trade on the financial markets with virtual capital, allowing me to explore the markets and learn how to read and analyse charts; testing preferred technical indicators whilst studying market movements whether trends are acting bearish or bullish.

Studying Media at A-Level was definitely the right choice for me, it allowed me to explore a wide variety of different media types, and how it is used everywhere. The area that I found particularly interesting was the manipulation of media content by mass media organisations that lead individuals to purchasing products or services, to forming certain stereotypes and opinions whilst believing false information. I found this both intriguing and alarming at the same time. Furthermore, as part of the course, I had created my sixth form their very own website allowing students and parents, to stay up to date with any news or events that the sixth form is running.

Studying Information and Communication Technology, was invaluable from learning the new developments in technology to ICT system capabilities and the dependence we all now have on technology and how we use it as an aid, to improve both efficiency and effectiveness of tasks. With a magnified interest in future developments and emerging technologies.

In my free time, I enjoy writing reviews on the books I have read during the week, which I post on my blog. I also offer tips and advice on topics such as self-management and social media marketing to my readers on other platforms such as e-mail and social media.

Confucius said: “Choose a job you love and you will never have to work a day in your life.” This quote is especially important to me because I personally believe that if you truly love what you do, it becomes a passion; a hobby. After all, work will take up a large percentage of one’s life.

As a student, I have always aspired to higher education at university as I have a committed and positive attitude to learning. I hope that my passion of business and finance, as well as my enthusiasm and determination has been demonstrated and hopefully will be of use when studying Finance at University, which will help learn new skills and overall achieve my full potential.

Profile info

There is no profile associated with this personal statement, as the writer has requested to remain anonymous.

Author's Comments

Personal Statement was literally written hours before the deadline.[I DO NOT RECOMMEND THIS - DO IT EARLY!] However, i hope this helps anyone! This would probably help those who are applying to either finance, business and economics. (i know, i spoke about media and ICT A- Levels - reason being is because i had problems with the economics and business teachers, ultimately preventing me from taking the courses.) But i did get offers from all of my options!

Good Luck people!!

This personal statement is unrated

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A Quick Guide to Financial Statement Services

Does your business have a clear and concise picture of its finances? Financial statement services revolve around a comprehensive approach to the preparation, review, and analysis of your business’s financial statements — one that's essential for organizations of all sizes.

When you engage with a professional financial statement preparation service, you ensure that your financial data is aligned with commonly accepted accounting principles and delivers a fair view of a business's financial position and performance.

These statements act as a compass, delivering critical insights into an organization’s fiscal health.

To help you understand the value and necessity of financial statement analysis and the role financial reporting services might play in your operations, let’s take a closer look at financial reporting and how financial statement service providers can help your business grow.

G-Squared Partners serves as a strategic financial advisor, providing a sophisticated suite of financial statement expertise, accounting, and bookkeeping services to businesses across various industries. To learn more about how we can support your business, schedule a consultation now . 

Understanding Financial Statement Services

Reliable financial statement services encompass a wide range of activities:

• Financial statement analysis
• Financial statement audits
• Financial statement preparation
• Financial statement review

These services often require the support of experienced financial professionals to ensure that statements align with generally accepted accounting principles (GAAP)  and that these documents and reports accurately reflect a company’s financial position.

While accurate financial statement preparation is key, often, the scope of work performed by financial statement service providers is broad and extends beyond simple preparation. This includes everything from compliance checks to offering financial statement assurance and analysis. 

In practice, there are three major statements that a company might prepare on a regular basis:

• Income statements
• Balance sheets
• Cash flow statements

A reliable financial statement service will have the expertise needed to juggle all of these elements to deliver critical insights and information to your team.

Importance of Reliable Financial Statements

While we’ve demonstrated how a reliable financial statement preparation service might impact your business operations, it's worth considering the importance of these types of documents.

These types of financial statements are critical for decision-making. Whether it’s for investors and lenders or for leadership and management, financial statements are an invaluable tool.

They help businesses better understand their viability and financial stability. They’re also essential for potential investors looking to build long-term relationships with your organization. 

Accurate and timely financial statements are also essential for compliance. Standards put in place by regulatory bodies like the Financial Accounting Standards Board (FASB) require companies to prepare and present accurate financial statements regularly. 

Benefits of Working with a Professional Financial Statement Service

When a business partners with the right service provider, they not only receive financial statement expertise but also a whole host of other key business benefits. 

First, the right financial statement service provider will always work toward accuracy and compliance with GAAP . These professionals will do the work of scrutinizing every financial transaction to ensure accuracy and compliance — supporting your financial health and mitigating possible legal repercussions. 

Another significant benefit is in the timeliness and efficiency of financial statement preparation, which is crucial for internal planning and decision-making. 

Expert financial service providers will come ready with streamlined processes in place. This allows for the efficient and timely preparation of these important documents. As a result, you can expect time savings for leadership and management positions, allowing them to focus on strategic and revenue-generating activities. 

When your business partners with a professional financial statement service, you also gain a clear advantage in expertise and knowledge. Service providers come ready with a profound understanding of the complex financial reporting landscape, as well as the strategic knowledge to help you interpret the meaning of the numbers in your financial statements. 

All this leads to better performance in specific areas, whether that’s easier access to business financing or improved knowledge of the profitability drivers of your business. 

Choosing the Right Financial Statement Service Provider

The importance of financial statements and reliable service providers cannot be understated. These types of reports and documents are mission-critical, helping businesses grow with a firm financial foundation and a focus on enacting sustainable decisions. 

But, partnering with the right financial statement consulting service is a challenge in and of itself. To help you find the financial reporting service that pairs with your business goals, here are a few key considerations to keep in mind:

• Assess your business needs and requirements : what size is your business? What industry are you working in? Identifying the appropriate level of service is essential. Often, providers offer either full and comprehensive packages of services or can provide simple assistance.
• Consider regulatory and stakeholder expectations : certain industries or jurisdictions may have unique requirements around standards and reporting. Moreover, you need to factor in stakeholders, investors, creditors, and the expectations of your internal team members.
• Evaluate service providers and their expertise : look for providers with a proven track record for accurate performance. Assess their industry knowledge and find a service provider that can offer valuable insights and industry-specific expertise.
• Review cost considerations : while cost shouldn’t be the deciding factor, what your business can afford will guide your choice. Just remember that partnering with a high-quality provider is just as much an investment in your company as raw capital.

G-Squared Partners: Your Experts in Financial Statement Services

There’s no room for business leaders to ignore the role financial statements play in everyday operations. Through comprehensive financial statement preparation, review, and analysis, businesses can achieve accurate financial data reporting, gain invaluable insights into their fiscal health, and meet the demands of regulatory compliance.

Here at G-Squared Partners , we understand the unique financial needs and challenges your business faces every day. Our mission is to deliver customized service solutions, like financial statement services, to meet those demands and help your team grow and succeed.

Our financial experts are ready to help build your company’s future with accurate and timely financial services. For more information, be sure to connect with the team to learn more about our current offerings. 

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Personal Finance

Personal finance encompasses the whole universe of managing individual and family finances, taking responsibility for your current and future financial situation, and setting financial goals. It also includes handling individual financial tasks and saving for emergencies.

Personal finance is about meeting your financial goals and understanding all the routes to do this, from saving and investing, and keeping debt under control, to buying a home to planning for retirement —and  coming up with a plan to accomplish these goals.It’s also the name of the industry that provides financial products to meet these goals.

Not getting control of your personal finances can leave you unprotected when a crisis comes along–whether it’s an illness, an unexpected job loss , or the death of the family breadwinner. The pandemic that began in March 2020 showed all of these issues in sharp relief and showed the importance of planning for emergencies .

What the pandemic showed is that people are a lot more secure if they have an emergency fund , have l earned to budget and have created a financial plan–one with a Plan B and Plan C. Those who haven’t done these things, should get busy doing them. It–and the war in Ukraine–are both wake-up calls that stock market crashes can happen abruptly in a crisis and that everyone needs a crisis investment plan .

For starters, you need to buy at least the minimum amount for your state. The two types of liability coverage for an auto accident are bodily injury liability (for injury to other people) and property damage liability (for property damage). Bodily injury liability specifies  both a per-person liability and a total liability per accident. For any damage outside of that you will need to pay personally, unless you have an umbrella insurance policy to make up the difference.

It's certainly looking that way. Even Warren Buffett had to switch to one in 2020. Banking is increasingly done online, budgeting apps are more convenient to use with a phone than a desktop or laptop, and it’s easier to check on your investments. And at work and elsewhere, two-factor authentication pretty much requires having a phone. So goes getting an Uber or Lyft .

If you need to move large amounts of money, a wire transfer–either bank to bank or via an agent such as Western Union–is the safest way to go. Expect to pay a fee and review the fine print before you agree to the transfer. It may take a few hours or days, depending on the details. Note that a wire transfer is different from an Automated Clearing House (ACH) transfer . Those are used to pay bills or move money between linked accounts.

Managing your money—including saving, investing, and setting financial goals—are all part of personal finance. So are areas like budgeting, retirement planning, and saving for your children’s college educations.

This free document-scanning and filing app from Google photographs documents like bills and receipts, and stores them as pdfs. It’s only available for Android phones and tablets, not Apple products.

This is the plan you need when your car breaks down on the road. You can get this coverage from your auto insurance company, or from AAA or your credit card. Even your cellphone provider might offer  it. Your vehicle’s age and mileage might be an issue on the coverage you can get, and there will likely be limits on how far you can be towed and how many service calls you get per year. Your car warranty may also cover assistance for a newer car.

Your assets and liabilities–summarized on a document or spreadsheet–are what constitute a personal financial statement. Subtracting your liabilities.  from your assets will yield your net worth. You will need a personal financial statement if you are applying for a mortgage or other loan. It will also let you track your personal worth over time. Interestingly, personal property like jewelry and antiques aren’t generally included in a personal financial statement.

People with disabilities who hope to return to work often worry that they will lose their Medicare disability coverage. This government program allows them to keep their coverage for at least 8½ years. Ticket Holders can receive employment and other services from qualified service providers.

Explore Personal Finance

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Watch CBS News

What customers should know about AT&T's massive data breach

By Khristopher J. Brooks

Edited By Anne Marie Lee

Updated on: April 11, 2024 / 3:23 PM EDT / CBS News

Millions of current and former AT&T customers learned over the weekend that hackers have likely stolen their personal information and are sharing it on the dark web . 

AT&T on Saturday said it doesn't know if the massive data breach "originated from AT&T or one of its vendors," but that it has "launched a robust investigation" into what caused the incident. The data breach is the latest cyberattack AT&T has experienced since a leak in January of 2023 , that affected 9 million users. By contrast, Saturday's much larger breach impacts 73 million current and former AT&T account holders. AT&T has seen several data breaches  over  the years that range in size and impact. 

The data breach prompted an Ohio man to file a class-action lawsuit against AT&T, accusing the telecommunications giant of negligence and breach of contract. Lawyers representing Alex Petroski of Summit County, Ohio, argued that the cyberattack could have been avoided and that AT&T's security failed to protect customer data. 

Until more details of AT&T's investigation arise, here's what customers should know about the most recent data breach.

How many people were impacted by the AT&T data breach?

AT&T said the breach on Saturday affects about 7.6 million current and 65.4 million former AT&T customers. 

What type of information was taken from AT&T?

AT&T said Saturday that a dataset found on the  dark web contains information such as Social Security and passcodes. Unlike passwords, passcodes are numerical PINS that are typically four-digits long. Full names, email addresses, mailing addresses, phone numbers, dates of birth and AT&T account numbers may have also been compromised, the company said. The impacted data is from 2019 or earlier and does not appear to include financial information or call history, it added.

Was my information affected by the AT&T data breach?

Consumers impacted by this breach should be receiving an email or letter directly from AT&T about the incident. The email notices began going out on Saturday, an AT&T spokesperson  confirmed .

What has AT&T done so far to help customers?

Beyond notifying customers, AT&T said that it had already reset the passcodes of current users. The company also said it would pay for credit-monitoring services where applicable.

What's the latest with AT&T's investigation into the breach?

AT&T hasn't disclosed details about its investigation into the data breach, but it is likely to be time-consuming and costly, according to Kevin Powers, the founding director of the Master of Science in Cybersecurity Policy and Governance Programs at Boston College.

The company will most likely bring in outside computer forensics specialists who will work with its on-site IT staff to determine exactly when and how the hackers got into the customer account information system, Powers said. But identifying the hackers' path of entry will be a big challenge for such a large company.

"You don't know where it came in from," Powers told CBS MoneyWatch, referring to the source of the breach. "It potentially could be from a customer or it could have been done from one of their outside contractors or someone else along their supply chain."

In addition, AT&T will have to scrub any malware out of the software that runs its customer account system, while also keeping the system running for customers who weren't impacted, he said. All these steps will have to be shared with lawyers, the outside consultants, and likely officials from the Federal Trade Commission. 

What's the best way to protect my personal information? 

Start by freezing your credit reports at all three major agencies — Equifax, Experience and TransUnion. Then sign up for 24-7 credit monitoring and enable two-factor authentication on your AT&T account, said WalletHub CEO Odysseas Papadimitriou, a former senior director at Capital One.

If you receive a notice about a breach, it's a good idea to change your password and monitor your account activity for any suspicious transactions. The Federal Trade Commission offers free credit freezes and fraud alerts that consumers can set up to help protect themselves from identity theft and other malicious activity.

—The Associated Press contributed to this report.

Khristopher J. Brooks is a reporter for CBS MoneyWatch. He previously worked as a reporter for the Omaha World-Herald, Newsday and the Florida Times-Union. His reporting primarily focuses on the U.S. housing market, the business of sports and bankruptcy.

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