Are you struggling to maintain your finance? If so, then you are probably not following a personal financial statement.
Having no personal financial statement makes it difficult for an individual to outline their financial health properly.
No, a personal financial statement is not complicated like a business financial statement. It contains basic information about a person’s liabilities, assets, and more. However, most interestingly, it clearly outlines an individual’s net worth.
If you plan to get a better grip on your personal finance, you are in the right spot. In this article, I have outlined the general idea of a personal financial statement for you to understand easily.
What Is A Personal Financial Statement?
A personal financial statement is data-driven and documented information about someone’s personal finance. A personal financial statement offers a visual representation of an individual’s financial health at a given point in time. It provides a breakdown of someone’s liabilities, assets, and offers, giving them a great opportunity to outline their wealth.
This record lets a bank evaluate an individual when they are seeking a loan. Even investors might want to know a person’s financial outline before working with them. This is applicable for loans, loan extensions, and more. The debt-to-income ratio can affect the interest rate the bank and the lenders offer you during loan reimbursements.
If you are assessing your personal finance and calculating the ups and downs of your income, then you will have a better outline of your retirement plan.
How To Write A Personal Financial Statement?
Drafting and documenting the financial statement of any individual does not have to be that difficult. Once you understand the financial statement’s different components, you can document it easily. There are two very elemental components of the financial statement –
Assets are something that includes the monetary value of something that an individual owns. On the other hand, liabilities mean the monetary value the individual owes to someone else.
When creating a personal financial statement, an individual must include some of the most important data such as – name, address, date, and SSN). You will also need to provide the source of your income (the source of your income and the amount you earn).
Banks and personal loan providers usually offer individuals a template to fill out their personal information. So, if you keep your personal statement outlined, those times will be easier to tackle. Go through the sections below to have a better and clearer understanding of the components of the personal financial statement.
The assets of an individual are usually cash or accessible cash. The assets can also comprise inaccessible cash– meaning– investments, retirement accounts, and money others owe to them. An individual’s financial statement also includes their cars and real estate properties.
These are some of the most common components that include and affect the personal financial statement of any individual. Also, when creating their financial statements, a person needs to evaluate, calculate and document the current values of the assets they own.
Liabilities are amounts that an individual owes to another individual or organization. Usually, these are money owed to institutions like a bank, mortgages, and unpaid taxes. Although real estates are an asset, when adding them to the financial statement, an owner has to subtract the mortgage(what’s remaining of it) from the property value. The reason is – loans are liabilities.
What Is Not Included In Personal Financial Statement?
Additionally, some elements should also not get included in the personal financial statement. Here are some of those elements –
- Personal financial statements cannot have business-related assets and liabilities.
- In the personal financial statement, you should also not include rented objects and personal properties like furniture, electronics, etc.
This information reflects that making the right purchase can affect your net worth. If you are renting a home, then it does not get included in your net worth. However, if you buy a house, then it gets counted as your asset.
Why Is Personal Financial Statement Important?
When you have your assets and liabilities figured out, you can easily calculate your net worth. You have to subtract all of your personal liabilities from the assets you own to calculate your net worth. Here are some of the reasons why it is important to get a clear outline of a personal financial statement –
- Net worth is the financial outline of an individual, and it provides them with a picture of where they stand financially. When an individual plans to increase their net worth, they have to decrease their liabilities and increase their assets. Some other ways of increasing net worth are by paying off loans, credit cards, getting a higher salary, or making profitable investments. These are some of the smart investment decisions someone can make.
- If the calculator of someone’s personal financial statement reveals a negative net worth, then they have to decrease their liabilities. Having a negative net worth is common for young people who are in debt due to their student loans.
- Having a clear outline of a personal financial statement allows individuals to find out different ways to increase their personal net worth. They can take side gigs, reduce unnecessary expenses or payoff debts smartly to increase their personal net worth.
- Also, you should remember that the value of your assets might change from time to time. That is why it is necessary to keep reevaluating one’s personal financial statement.
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The personal financial report of any individual helps them greatly. It has a huge effect, from getting loans to increasing their net worth. If you see a negative cash flow or want to increase your personal net worth, then your net financial statement is the place to start. Then you can go on to calculate your personal cash flow statement and necessary information. Understanding one’s personal income and financial statement makes one spend wisely.
If you understand what a personal financial statement means, then this article should help. However, if you need us to answer more of your queries, please let us know through the comment section.