Personal Financial Statement

What Is a Personal Financial Statement?

The term personal financial statement alludes to a document or spreadsheet that frames an individual's financial position at a given point in time. The statement ordinarily incorporates general information about the individual, like name and address, alongside a breakdown of total assets and liabilities. The statement can assist individuals with tracking their financial objectives and wealth, and can be utilized when they apply for credit.

Figuring out the Personal Financial Statement

Financial statements can be prepared for either companies or individuals. An individual's financial statement is alluded to as a personal financial statement and is a less difficult variant of corporate statements. Both are tools that can show the financial strength of the subject.

A personal financial statement shows the individual's net worth — their assets minus their liabilities — which reflects what that person has in cash assuming they sell every one of their assets and pay off the entirety of their obligations. In the event that their liabilities are greater than their assets, the financial statement shows a negative net worth. On the off chance that the individual has a larger number of assets than liabilities, they end up with a positive net worth.

Keeping a refreshed personal financial statement permits an individual to follow how their financial wellbeing improves or crumbles over the long haul. These can be priceless tools when consumers need to change their financial sitution or apply for credit like a loan or a mortgage. Knowing where they stand financially permits consumers to stay away from superfluous requests on their credit reports and the issues of declined credit applications.

The statement permits likewise credit officers to effectively gain point of view into the candidate's financial situation to settle on an informed credit choice. Generally speaking, the individual or couple might be approached to give a personal guarantee to part of the loan or they might be required to put up collateral to secure the loan.

Special Considerations

A personal financial statement is broken down into assets and liabilities. Assets incorporate the value of securities and funds held in checking or savings accounts, retirement account balances, trading accounts, and real estate. Liabilities incorporate any obligations the individual might have including personal loans, credit cards, student loans, unpaid taxes, and mortgages. Obligations that are jointly owned are additionally included. Married couples might make joint personal financial statements by consolidating their assets and liabilities.

Income and expenses are likewise included assuming the statement is utilized to achieve credit or to show somebody's overall financial position. This can be followed on a separate sheet or an addendum, called the income statement. This incorporates all forms of income and expenses — commonly communicated as month to month or yearly sums.

The accompanying things are excluded from a personal financial statement:

Business-related assets and liabilities: These are excluded except if the individual is straightforwardly and personally responsible. So if somebody personally guarantees a loan for their business — like cosigning — the loan is remembered for their personal financial statement.
Rented items: Anything rented is excluded from personal financial statements on the grounds that the assets aren't owned. This changes assuming you own the property and rent it out to another person. In this case, the value of the property is remembered for your asset list.
Personal property: Items, for example, furniture and household goods are regularly excluded as assets on a personal balance sheet in light of the fact that these things can only with significant effort be sold to pay off a loan. Personal property with huge value, like jewelry and collectibles, might be incorporated in the event that their value can be checked with a appraisal.

Business liabilities are possibly remembered for a personal financial statement in the event that an individual gives the creditor a personal guarantee.

Keep at the top of the priority list. Your credit report and credit history are big contemplations with regards to getting new credit and each lender has different requirements for giving credit. In this way, even on the off chance that you have a positive net worth — a larger number of assets than liabilities — you might in any case be denied a loan or credit card in the event that you haven't paid your previous obligations on time or have too numerous requests on file.

Illustration of a Personal Financial Statement

We should expect that River needs to follow their net worth as they push toward retirement. They have been paying off obligations, saving money, investing, and is drawing nearer to possessing their home. Every year, they update the statement to see the improvement they have made.

This is the way they would break it down. They would list every one of their assets — $20,000 for a vehicle, $200,000 for their home, $300,000 in investments, and $50,000 in cash and equivalents. They additionally claims a few profoundly collectible stamps and art valued at $20,000 that they can list. Their total assets are, accordingly, $590,000. Concerning liabilities, River owes $5,000 on the vehicle and $50,000 for their home. In spite of the fact that River makes every one of their purchases with a credit card, they pay the balance off every month and never conveys a balance. River cosigned a loan for their girl and there is $10,000 staying on that. Even however it isn't River's loan, they are as yet responsible, so it is remembered for the statement. River's liabilities are $65,000.

At the point when we take away their liabilities from their assets, River's net worth is $525,000. In spite of the fact that they use it basically to follow their financial wellbeing, River can involve this information — and the statement in general — to apply for some other credit.

Features

A personal financial statement records all assets and liabilities of an individual or couple.
Personal financial statements are useful for tracking wealth and objectives, as well as applying for credit.
In spite of the fact that they might be remembered for a personal financial statement, income and expenses are generally put on a separate sheet called the income statement.
Net worth can vary over the long run as the values of asset and liabilities change.
An individual's net worth is determined by deducting their liabilities from their assets — a positive net worth shows a greater number of assets than liabilities.