What is a Personal Financial Statement?

A personal financial statement is a document or spreadsheet outlining an individual's financial position at a given point in time. A personal financial statement will typically include general information about the individual, such as name and address, along with a breakdown of total assets and liabilities.

The statement is useful for tracking goals and wealth. It is also often required when applying for credit.

Key Takeaways

  • The personal financial statement lists all assets and liabilities of an individual or couple.
  • Subtract liabilities from assets to see the net worth. A positive net worth shows that the person has more assets than liabilities.
  • Net worth can fluctuate over time as asset and liability values change.
  • Personal financial statements are helpful for tracking wealth and goals, as well as applying for credit.
  • Income and expenses can be included, but ideally, these are placed on a separate sheet called the income statement.

Understanding the Personal Financial Statement

A financial statement can be prepared for either a business or an individual. The statement shows the financial health of the entity named in the statement. An individual’s financial statement is referred to as a personal financial statement and it is a simpler version of the corporate statements.

An individual’s financial statement shows their net worth, which is assets minus liabilities. Net worth reflects what an individual will have in cash if they sold off all their assets and paid off all their debts.

If liabilities are greater than assets on the personal financial statement, then the individual has a negative net worth. If the individual has more assets than liabilities, they have a positive net worth.

Personal financial statements are most often used when an individual is applying for credit, such as loans or a mortgage. The financial statement allows credit officers to easily gain perspective into the applicant's financial situation in order to make an informed credit decision. In many cases, the individual or couple may be asked to provide a personal guarantee for part of the loan, or may have to pledge some of the personal assets as collateral to guarantee the loan.

By comparing personal financial statements over time, an individual can track how their financial health is improving or deteriorating.

What's Included and Excluded From a Personal Financial Statement?

The personal financial statement is broken down into assets and liabilities. Assets include the value of securities and funds held in checking or savings accounts, retirement account balances, trading accounts, and real estate.

Liabilities include the individual’s personal loans, such as credit card balances, student loans, unpaid taxes, and mortgages. Also include debts which are owned jointly with someone else, for example, if you cosigned on a loan.

A married couple may create a joint personal financial statement that shows all the assets owned and the debt incurred.

Business-related assets and liabilities are not generally included in a personal financial statement unless the person is directly and personally responsible. For example, the individual personally guaranteed a loan for their business. This is similar to cosigning, so this would be included on the personal financial statement.

Anything rented is not included on personal financial statements because the asset isn't owned by the individual. Although, if you own the property and are renting it out to someone else, the value of that property is included in your asset list because it is owned.

Personal property, such as furniture and household goods, is typically not included as assets on a personal balance sheet because these items can’t easily be sold off to pay a loan. However, personal property with significant value, such as jewelry and antiques, can be included if the value can be verified with an appraisal.

If using the statement to attain credit or show overall financial position, income and expenses are also generally included. This can be tracked on a separate sheet, called the income statement. This includes all forms of income and all expenses, typically expressed in the form of monthly or yearly amounts.

Example of a Personal Financial Statement

Assume that Henry wants to track his net worth as he moves toward retirement. He has been paying off debts, saving money, investing, and is getting closer to owning his home. Each year, he updates the statement to see the progress he has made.

Assume that Henry has assets of $20,000 for a car, $200,000 for his house, $300,000 in investments, and $50,000 in cash and equivalents. He also owns some highly collectible stamps and art valued at $20,000. His total assets are $590,000.

As for liabilities, Henry owes $5,000 on the car and $50,000 on his house. He pays for things with a credit card, but pays the balance off each month, so there is no balance owing. Henry cosigned a loan for his daughter and there is $10,000 remaining on that. Even though it is not Henry's loan, he is still responsible for it so it is included on the statement. Henry's liabilities are $65,000.

Subtracting liabilities from the assets, Henry's net worth is $525,000.