What is Personal Financial Statement
The term “personal financial statement” refers to the summary of an individual’s financial position at a particular point in time. Typically, the document includes general information pertaining to the individual along with the summary of the financial position in terms of total assets and liabilities as well as net income flow. Individuals primarily use it to track their progress towards their financial goals. Therefore, the personal financial statement can be classified into two sections – balance sheet and income statement.
Types of Personal Financial Statement
There are two major types, and they are:
- Personal Balance Sheet
- Personal Income Statement
1. Personal Balance Sheet
This type of personal financial statement provides an overall snapshot of an individual’s financial wealth at a given point in time. Basically, it is the summary of the assets, the liabilities, and the net worth. The assets include what is owned by the individual in terms of liquid assets (such as cash, checking accounts, savings accounts, etc.), large assets (such as real estate properties, cars, furniture, etc.), and investments (such as bonds, mutual funds, stocks, etc.). On the other hand, the liabilities are what is owed by the individual, such as payments, credit card bills, personal loans, other payables, etc.
Now, the individual’s net worth can be calculated as the difference between the assets and the liabilities. The net worth is the measure of the wealth accumulated by the individual across several accounting periods. In other words, it represents what he/ she owns after paying off all financial obligations. In some cases, the net worth becomes negative, which indicates that the individual owes more than what he/ she owns.
2. Personal Income Statement
This type of personal financial statement captures the inflows and outflows of money in order to measure the net income for a particular period of time. The sources of inflows generally include salaries, dividends from investments, interest from savings accounts, capital gains, etc. Basically, sources of inflow represent anything that brings in money. On the other hand, the expense heads generally include rent/ lease/ mortgage payments, groceries, utility bills, entertainment, etc. So, effectively, expense heads represent anything that takes away money.
Now, the main purpose of tracking the inflows and outflows of money is to determine the net income during a given period, which is simply calculated by deducting the expense heads from the income. A positive net income indicates that the individual earned more than what he/ she spent, and the difference adds up to the net worth, resulting in an improved financial position. On the other hand, a negative net income means that the individual spent more than what he/ she earned, which results in a deterioration of financial position.
Example of Personal Financial Statement
Let’s take an example to understand the calculation of personal financial statements in a better manner.
Let us take the example of David to illustrate the concept of financial position. The assets available with him are as follows:
- A car worth $15,000
- A house worth $100,000
- Investments with a market value of $150,000
- Cash & bank balances of $30,000
- Collectibles and artifacts valued at $35,000
David’s liabilities are as follows:
- A car loan with a current outstanding of $8,000
- A house loan with a current outstanding of $65,000
- Credit card bills worth $3,000
- Other personal loans of $90,000
Total Assets is calculated as
- Total Assets = $15,000 + $100,000 + $150,000 + $30,000 + $35,000
- Total Assets = $330,000
Total Liabilities is calculated as
- Total Liabilities = $8,000 + $65,000 + $3,000 + $90,000
- Total Liabilities = $166,000
Net Worth is calculated as
Net Worth = Total Assets – Total Liabilities
- Net Worth = $330,000- $166,000
- Net Worth = $164,000
Therefore, David’s net worth is $164,000, which indicates his financial position.
Why Use Personal Financial Statement
The personal financial statement is a very important and valuable tool for planning individual finances. It is a goal-oriented tool that helps in monitoring the expenses and tracking the increase in net worth. Based on the personal financial statement analysis, the individuals can where they stand on the path to their financial goals and then accordingly decide on how to go about it in the short and long term future.
Create Personal Financial Statement in Excel
There are multiple types of personal financial statement templates available and the one provided below is one of the simplest versions, which can be easily understood. However, individuals can use a more complicated and detailed version based on their requirements.
- It is the summary of the financial position of an individual at any given point in time.
- It can be broken down into two major parts – a personal balance sheet and a personal income statement.
- It is a useful financial planning tool that helps individuals monitor their net inflow of money as well as track their financial wealth.
This is a guide to Personal Financial Statement. Here we also discuss the definition and types of personal financial statements along with examples. You may also have a look at the following articles to learn more –