What Is a Personal Financial Statement?

It is sound financial advice to take a breather and re-evaluate your finances at regular intervals. This can give you a great idea of where you stand financially at a given point in time and you can accordingly modify your financial goals. One of the best ways to find out your financial standing, which is your assets, liabilities, liquid funds etc is via a personal financial statement .

A personal finance statement is a snapshot of your current financial standing, and it can help you gain an understanding of your monetary affairs. Let us take a closer look at what a personal financial statement is.

A personal financial statement is a document or a spreadsheet that contains a detailed breakdown of all your financials. It contains details of all your assets as well as all your liabilities. It is a single document that can give you the entire picture of where you stand financially. Rather than calculating your total assets and liabilities every time you want to check your financial growth, you can get a personal financial statement made and get a clear snapshot of your finances.A personal financial statement also contains your personal particulars like your name and address. You can also use this document when you apply for credit.

A personal financial statement is mainly divided into two main components, assets and liabilities. Assets include funds in your savings account, securities, fixed deposits, mutual funds, equity shares, real estate, gold etc. Liabilities are the debts and financial obligations you may have, like home loans, car loans, credit cards, taxes, rent, expenses etc.In case a debt is jointly owned, then it will be included in the personal financial statement. Married couples usually have joint assets and loans. Hence, they can also create a joint personal financial statement.

Business-Related Assets and Liabilities:

Since this is a personal financial statement, any business-related asset or liability is not included in it. If, however, a person takes a personal loan for business purposes, then it may be included in the statement.

Rented Items or Property:

Rented property or items may not be included in the personal finance statement since they’re not owned. If a purchase is made of the property, then it’s value can be included in the personal financial statement.

Personal Property:

Personal property like furniture and household goods are usually not included as assets in a personal financial statement since these items cannot be liquidated easily to pay off debts. Personal items that are very valuable, like gold and other jewellery,may be considered in the financial statement.

A personal financial statement is an excellent tool to find out your net worth and whether your net worth is positive or negative. To find out your net worth, you can subtract the total liabilities from your personal financial statement from your total assets. The resulting figure is your net worth at a given point in time. If this number is positive, this means that your liabilities are lesser than your assets and your net worth is positive. If the number you get is in the negative, this means your expenditure is overshooting your assets and your net worth is negative. In this case you may need to re-evaluate your finances and limit your liabilities.Another importance of a personal financial statement is it gives creditors or lenders a bird’s eye view of your finances. If your liabilities are too great, a lender may not proceed with giving you a loan. On the other hand, a positive net worth in your financial statement makes you a favourable candidate for a loan.

You can make a personal financial statement on your own or request the services of a chartered accountant. Here are the key steps required to make a personal financial statement.

• Create a spreadsheet and divide it into assets and liabilities
• Fill out all your assets and their worth in an adjoining column.
• At the end of the assets column, add up the value of all your assets.
• Similarly, fill out the liabilities and write the amount you owe next to them.
• At the end of the liability column, add up all the liabilities.
• You now have the total value of all your assets and your rural liabilities.
• Subtract them and you’ll get your net worth.

• A personal financial statement can be used to calculate your net worth.
• It can be used to get a clear idea of all your assets and liabilities.
• A regularly updated personal financial statement gives an individual an idea of how their financial condition improves or grades over time. Hence, they can make the necessary course correction to get back on track.
• It is also a great tool when you want to change your financial situation or apply for a loan.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.