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If you are like most people, you take a look at your monthly credit card and bank statements and wonder how you spent more than you thought you did. There is a way to avoid this dilemma. Having personal financial statements is a simple accounting method for calculating your income and expenditures. Corporations use financial statements to assess their financial health and help with financial planning. You can use a personal financial statement in the same way and achieve the same goals.

man calculating assets and financial reports

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What Personal Financial Statements Are

Personal financial statements are sketches of individuals’ financial situations; they list in some detail the components of peoples’ assets and liabilities. Personal financial statements also often include Income Statements, which allow for a picture of income and expenditure over time to be drawn. Personal financial statements are employed to keep account of changes in peoples’ financial positions, and as a reference point for looking to your financial future.

When you apply for loans from financial institutions, it’s likely that you will be asked to provide your financial records so that the institution can judge the level of risk you pose. Your debt/income ratio is important here for determining the amount of the service payments you’ll have to make on the loan. It’s a good idea to have this information on hand; if you’re familiar with your financial situation, you’ll be more likely to make good financial decisions. This is also true for the plans you make about your financial future, such as retirement plans. Having an updated personal financial statement will help you to keep track of your progress toward meeting your retirement goals.

Preparing your Personal Financial Statement

For all the reasons given above, preparing a personal financial statement will reward you far beyond the time and work you put into it.

The two most important categories found in personal financial statements are assets and liabilities. Your assets are the monetary value of your possessions, and liabilities are the monetary value of your debts. It’s also a good idea to include your personal information in your financial statement, like your name and address, as well as the date on which you complete the document. This is in case you ever need to use your personal financial statement to prove you can be trusted to pay back a loan. This is true even though financial institutions will usually provide with their own blank template as part of the application process, since you’ll be able to refer quickly to the information you’ll need to fill it out.

Two Types of Personal Financial Statements

You can sum up your personal finances by using two different personal financial statements. You need a personal cash flow statement that demonstrates how much you make each month And you will need a balance sheet to get an idea of how well your inflow and outflow balance out.

Personal Cash Flow Statements

Personal cash flow statements keep an account of cash inflows and outflows. This shows you your net cash flow for a designated time period. A cash inflow usually includes things like:

  • Your salaries
  • Savings account interest
  • Investment dividends
  • Capital gains

But it can also include money you took in from selling assets like cars or houses. Basically, cash inflow refers to anything that brings money in. Cash outflow represents all of your expenses, no matter how large or small. Some common cash outflows include:

  • Mortgage payment or rent
  • Utilities
  • Groceries
  • Gas
  • Entertainment expenses

You want to determine your cash inflows and outflows so you can calculate your net cash flow. To calculate net cash flow, subtract your total cash outflow from your total cash inflow. If you end up with a positive net cash flow, you earned more than you spent. That is good because you have money left over during the period you are assessing. However, if your result is a negative net cash flow, then you spent more money than what you brought in.

Personal Balance Sheets

Another type of financial statement is a balance sheet. A personal balance sheet gives you an overall view of your wealth at any point in time. It contains a summary of what you own (assets), and what you owe (liabilities), and your net worth. Subtracting liabilities from assets results in your net worth.

personal assets house and car

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3 Asset Categories

All assets fall into three different and distinct categories:

  • Liquid Assets. These assets can be sold and turned into cash without losing any value. They include cash, checking accounts, savings accounts, and money market accounts. Some like to include CDs (certificate of deposit) in this category. However, the problem is when you withdraw funds, most institutions charge a withdrawal fee which reduces the investment’s value.
  • Large Assets. These assets include physical things like your house, vehicles, boats, furniture, and artwork. Use the market value for these items when you include them on your personal balance sheet. If you are not sure of their market value, use a recent sales price for similar items.
  • Investments. Bonds, CDs, stocks, real estate, and mutual funds are examples of investment assets. These should be recorded at their current market values.


In short, liabilities are what you owe. These include your current bills, payments you still owe on assets like your house and cars, credit card balances, and any other outstanding loans.

Net Worth

Your net worth is a simple calculation using the information obtained from your outflow and inflow. Just subtract what you owe, from the amount that you own. The final numbers represent your wealth. It is a numerical representation of what you own after all your debts are paid off. There are a few ways to increase your net worth. You can either increase your cash or increase the value of assets you own. Just be cautious and don’t increase your liabilities while you are trying to increase your assets. For example, you can increase your assets by purchasing a house. But taking out a mortgage on the house only increases your assets if the house is worth more than the mortgage. It’s the same when trying to reduce liabilities.  You want to achieve a decrease in what you owe without diminishing your assets.

How to Calculate your Net Worth with a Personal Financial Statement

If you don’t know your net worth, or if you’re not targeting a specific net worth, it might be time to prepare a personal financial statement.

A personal financial statement is a sketch of your personal assets and liabilities that allows you to calculate and keep track of your net worth. This kind of document is also useful for when it comes to time to think about investing as an easy reference to draw on when applying for loans from financial institutions.

What’s the Use of a Personal Financial Statement?

As we’ve seen, your assets minus your liabilities equals your net worth. Your net worth is important because it is used to determine your financial standing, which is an important part of the loan process that financial institutions use to judge whether you can be trusted to repay what you owe.

To increase your net worth, you can start by paying off your debts in order to reduce your liabilities. Work hard and earn that raise. Spend your money wisely and make smart investments.

After you’ve prepared your personal financial statement, you might discover that your net worth is negative. Although this isn’t an uncommon problem, especially for younger people who haven’t paid off student loans, you should try to figure out how to change your financial situation. Taking a second job, reducing day-to-day expenses, or talking with a financial advisor like the professionals here at NumberSquad can help.

Keep your Personal Financial Statement Up-to-Date

Once you have an idea of your financial situation, it’s important to remember that your situation is always changing, and sometimes in major ways. That’s why we recommend that you revisit your personal financial statement regularly. This will help you keep a realistic picture of your net worth in mind when it comes to time to make decisions, big or small.

Bringing Personal Financial Statements all Together

Personal financial statements make great tools to monitor your spending and increasing your net worth. They are not two pieces of information. Actually, they work together as one. Your cash flow statement contains your net cash flow, which helps you increase your net worth. A positive cash flow in any time period can help pay off liabilities or be used to acquire assets. Applying net cash flow toward net worth is an exceptional way to increase your assets without increasing your liabilities. Additionally, it helps decrease your liabilities without increasing your assets.