What is a personal financial statement?

A personal financial statement is an overview of a person or household's finances. Unlike a budget, a financial statement doesn't track every dollar earned or every expense throughout a period. Instead, it's a snapshot of their financial standing at any given moment.

Read on to learn what goes into a personal financial statement, why people may use them, and more.

Personal financial statements explained

Personal financial statements can be for individuals or households, and they commonly include two parts:

• A balance sheet that lists a person's assets, liabilities, and net worth.
• An income statement that shows sources of income and total annual income.

Here's what goes into each.

Assets

Assets can be cash, investments, and other items of value that someone owns. Common examples of assets include:

• Cash and money in bank accounts
• Stocks, bonds, and other investments
• Retirement account funds
• A home, vehicle, boat, jewelry, and other valuable property

Liabilities

Liabilities are outstanding debts. They’re generally listed with the monthly payment and the current balance. Liabilities may include:

• Credit card debt
• Personal, student, auto, home, and vehicle loans
• Collection accounts
• Legal claims and judgments
• Unpaid taxes
• Co-signed or guaranteed loans

Net worth

Subtract the sum of the liabilities from the sum of the assets to find the person or household's net worth. The resulting net worth may be negative, but that's not necessarily bad. For example, many people have a negative net worth while paying off their mortgage. Net worth isn’t a full indication of someone’s financial health but can serve as another tool to broadly encapsulate what someone owns and owes.

Income

A personal income statement lists various sources of income along with the estimated monthly and annual totals. These may include income from:

• Wages, salary, and commissions
• Side gigs or a business
• Stocks, bonds, and other investments
• Rental income after expenses
• Alimony or child support

What is the purpose of personal financial statements?

There are various reasons someone may want to create a personal financial statement, such as:

Assessing financial health

For people who don't regularly budget or track their accounts, creating a financial statement may be a helpful way to understand their savings, debt, and overall financial health. It may spur them to start saving money or reassure them that they're doing well financially.

Facilitating financial decisions

Reviewing a financial statement may be helpful before making a big decision, such as deciding between buying a new or used vehicle. It can give someone a clearer picture of where their finances stand and, in turn, potentially help them figure out whether a significant purchase is the right choice.

Supporting financial goals

People may want to track their financial statements over time to see how they're progressing with financial goals. For example, someone could list an emergency fund under their assets and keep track of any growth in their balance from one month to the next. Similarly, tracking total liabilities could be helpful when paying off debt to visualize progress and maintain a plan to pay it off.

Preparing a personal financial statement

Some financial institutions may have personal financial statement forms for customers, but people can also create their own statements using a spreadsheet or software. In either case, here are some steps to take when creating a personal financial statement:

• Gather and organize financial information: Review the most recent statements or log into every financial account to find current balances and monthly payments. Use these to add up current assets, liabilities, and income.
• Connect and sync accounts: It may be possible to connect accounts to a well-trusted budgeting app to find and easily capture current balances. Even if the apps don't call it a financial statement, many make it easy to review assets, liabilities, and net worth. However, income may need to be calculated separately.

Whether using an app or other third-party service, it’s important to only share financial information with trusted sources. Be sure to do research on any third party before sharing information and remain wary of anyone requesting excessive information.

All in all, personal financial statements can often be an important tool for tracking financial health over time. Some people do this monthly alongside their budget. If that's too difficult without software, consider updating a financial statement every six months to a year. Keeping it updated may make it easy to continuously follow progress for financial goals, maintain understanding of debt balances, and potentially help make decisions for future money management.

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