What Is a Personal Financial Statement?

Personal Financial Statements Explained

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A personal financial statement is a spreadsheet or document that outlines your net worth—which is your assets minus your liabilities. You can create one yourself or employ the help of a financial advisor.

Learn how personal financial statements work, and why they’re important for evaluating the overall health of your personal or business finances.

Definition and Examples of a Personal Financial Statement

A personal financial statement is a physical snapshot of your assets compared to your liabilities. It gives you a real-time view of your wealth and helps you assess your current financial situation. While it's beneficial for your own financial growth, lenders may ask for a personal financial statement if you’re applying for a loan

But what are assets and liabilities? Your assets refer to all items you can easily convert to cash, including:

  • Bank accounts
  • Retirement accounts
  • Investment balances
  • Real estate
  • Personal property with significant value, such as rare art collections, coin collections, antiques, and jewelry

Your liabilities refer to all the debt you owe. They can be:

If your total assets are higher than your liabilities, your personal financial statement reflects a positive net worth. This is a sign that you’re building wealth and signals to lenders that you may be a trustworthy borrower.

If your liabilities are higher than your assets, however, you have a negative net worth. This signals you may be living paycheck to paycheck or spending more than you earn, and you could be seen as a high-risk borrower to lenders.

If you are in a committed partnership or married and share assets, you and your partner can combine assets and liabilities to create a joint personal financial statement.

Suppose you have $200,000 worth of assets. This includes your house, a bank account, and a retirement account. Now let’s say you have $130,000 in liabilities. This includes your mortgage, some student loans, and credit card debt. In this case, your net worth is $70,000.

Here’s an example of how your personal financial statement may look in spreadsheet form:

Personal financial statement

The Balance

Your personal financial statement will be a lot more complex if you’re creating one for your business. For small business owners, the Small Business Administration (SBA) has a sample personal financial statement you can use as a guide.

How Does a Personal Financial Statement Work?

Wealth is not defined by the income you accumulate, but by your net worth. A personal financial statement is important because it shows if your net worth is improving or decaying over time. It sheds light on your entire financial picture so you can see if you’re moving closer or farther away from your goals.

For example, suppose your financial goal is to retire early. You’ve officially paid off your debt (minus your mortgage), but you’re not sure how close you are to reaching your retirement goals. You decide to create a personal financial statement to see where you stand.

Below is a guide to how you would fill out your personal financial statement, using the above example.

Step 1: List All Your Assets

Most assets have a clear dollar value (i.e., you can look in your bank account and see what your balance is). But some assets—such as your car, home, or an art collection—may require an appraisal first.

If you’re creating a personal financial statement for a lender, it’s important to be as accurate as possible (and get an appraisal if you’re unsure of the amount). But if it’s just for your own personal records, an educated guess may be fine. This may look like:

  • $600,000 in your home
  • $150,000 in your 401(k)
  • $125,000 in your investment account
  • $40,000 in your checking and savings accounts
  • $30,000 in your traditional IRA
  • $5,000 for your car

Total assets = $950,000

Anything you rent does not count as an asset because you don’t own it. So if you rent a house or lease a car, leave it off your personal financial statement.

Step 2: List All Your Debt 

Your debts are your liabilities. In this example, we’ve stated you’ve paid off all your debt except your mortgage, so that’s the only thing listed here.

  • $300,000 on your mortgage

Total liabilities = $300,000

If you pay your credit card bill off in full every month, it’s not considered debt, so don’t include it on your personal financial statement.

Step 3: Subtract the Two Numbers To Get Your Net Worth

In this example, when you subtract the assets from your liabilities, you see that your total net worth is $650,000.

Now, suppose you know you need $1.2 million to reach financial freedom and retire early. Your personal financial statement would show that you’re $550,000 away from your goal. You could then update it again next month to track your progress, and make changes to your spending and saving as needed.

Do I Need a Personal Financial Statement?

Personal financial statements help individuals understand the overall state of their personal or business finances, and calculate their net worth. They can also be used as a tool when applying for credit such as a mortgage, personal loan, or business loan. To get a snapshot of your financial health, it’s a good idea to create a personal financial statement.

Even if you have a positive net worth, it is not guaranteed you will receive a loan you apply for. Credit history and past debts are also taken into consideration by lenders.

The biggest drawback of personal financial statements is that it’s a frozen snapshot of your financial health at any given time. For it to have a positive impact, you have to update it regularly.

The good news is that there are many online tools you can use to automate your personal financial statement. Two popular options include:

  • You Need a Budget (YNAB): This is a personal finance software with strong financial budgeting features that can automatically track your assets and liabilities for you. As you earn income and pay off debt, your net worth updates in real time.
  • Personal Capital: This tool for tracking your net worth acts as more of a wealth management tool, praised for helping you track and optimize investments and spot ways to diversify and manage risk. It connects with more than 14,000 financial institutions and provides a moving snapshot of your net worth.

Key Takeaways

  • A personal financial statement is a document that lists all your assets, liabilities, and resulting net worth.
  • Personal financial statements can be used by individuals and businesses.
  • A personal financial statement is important because it shows you if you’re building wealth, and can play a critical role in helping you get approved for loans.
  • The most efficient way to keep your personal financial statement up-to-date is to use budgeting software that tracks your net worth for you.