A Personal Financial Statement Example – What to Include

A personal financial statement is a document that summarizes an individual’s financial position at a specific moment in time. It typically contains a breakdown of all your assets and liabilities, giving you an insight into your financial position and financial health.

Assets are things with economic value that you can turn into cash, such as your home. Liabilities are money that you owe others, such as loans.

A personal financial statement contains your personal information, a balance sheet, and your income statement.

Components of A Personal Financial Statement

Personal Information

Some personal information that might be outlined in a personal financial sheet is your full name, home address, and total assets and liabilities.  

A Balance Sheet

A personal balance sheet includes detailed information regarding your assets, liabilities, and equity. Personal equity is also known as capital or net worth. It is the money that is left over after selling all of your assets and paying off all of your liabilities.

In most balance sheets, the total assets are listed on the left side, while liabilities and equity are listed on the right side. Assets are listed based on how quickly they will turn into cash.

The two main asset types are current and noncurrent assets. Current assets are resources that you expect to convert into money within a year. Noncurrent assets are those that take more than a year to turn into cash.

When it comes to liabilities, they are listed based on their due dates. Current liabilities are those that you expect to pay off within a year. Long-term liabilities are those that you anticipate to pay off in more than a year.

The Income Statement

A personal income statement gives a summary of your incomes and expenses for a specific period. Income is what you earn from salaries, wages, interests, operating cash flows, or dividends.

Expenses are the costs of the things you consume for your daily living.

The difference between the two becomes your net cash flow. An income statement helps you calculate your net cash flow.

If your income is more than your expenses (positive cash flow), you have a surplus that you can save or add to your expenses. If your income is less than your expenses, you have a deficit that you should address before it creates debts.

Since a personal cash flow statement is detailed, it can also help you manage your income and living expenses.

You can identify which expense is taking most of your income if you want to reduce your expenses. It also gives you some insight into your personal cash flow, making it easier for you to plan towards your financial goals. Accrual accounting can help you track your income and expenses. Follow GAAP standards while recording such information.

Assets and Liabilities

Assets

We’ll discuss various types of assets that you can put on your income statement.

Immediate Assets

Immediate or quick assets are assets that turn into cash within a short period. They also refer to those that are already in cash form.

Another requirement for a personal asset to qualify as a quick asset is that it loses little to no value when converted into cash. Quick assets mainly include accounts receivable, emergency fund, cash, marketable securities, and cash equivalents.

Retirement Accounts

A retirement account can also be called an IRA, Individual Retirement Account. An IRA is a tax-advantaged individual account that you can use for your retirement savings.

Setting up an IRA helps you cut your tax bill, prepare for retirement, and get access to many investment options your workplace retirement plan does not offer.  

Business Assets

Business assets are valuable items that your business creates, owns, or provides benefits for it. These assets include intellectual property, cash, buildings, stock, or even buildings.

When put on a balance sheet, business assets are put in order of liquidity and historical cost. It appears as an item of ownership on the balance sheet.

Fixed Assets

Fixed assets are long-term tangible items such as equipment or properties that you own and use to generate income. Fixed assets are also known as capital assets.

These assets are long-term and can take more than a year to be converted into cash. Fixed assets can include buildings, land, machinery, among others.

Fixed assets typically appear on a personal balance sheet as property, plant, and equipment (PP&E).

Vehicle

A vehicle is a long-term asset account that keeps track of your automobiles, trucks, etc. The vehicle account, like fixed assets, appears on a balance sheet as property, plant, and equipment (PP&E).

For your net worth to be accurate, you should keep adjusting your vehicles’ value since they depreciate over time.

Children Accounts  

Children’s accounts are long-term assets used primarily to save money for your child’s post-high school education. The accounts are usually a restricted-use policy to ensure it stays until your child finishes his/her high school education.

Liabilities

Credit Card Balance

Credit card debt is the amount of money a person owes for any purchases made by the credit card.

Since it is a current liability, a person pays the amount within a normal operating cycle, usually within 12 months. Credit card debt accumulates when one opens several credit card accounts.

Bank Loans

A bank loan is the amount of money a financial institution lends you for a specified period. Bank loans can be for virtually any purpose (business loan, SBA loan, or personal loan).

Most banks impose an interest rate on loans taken based on your credit history. The total amount of your debt is the amount borrowed plus the specified interest.

Student Loans

A student loan is a type of loan acquired to assist students in paying for their post-high school education and related costs such as books, living expenses, and tuition. It is a long-term liability as it becomes due or matures at a certain date.

Back Taxes

Back taxes are taxes that were not fully paid in the fiscal year in which they were due. They regularly accumulate penalties and interests the longer you delay. The total income tax debt will be taxes plus penalties charged.

How Assets and Income Work Together

Well, you can use your income to purchase income-generating assets such as stocks, real estate, and bonds.

With time, those assets will start to generate profits that can boost your total income and increase your cash flow. Instead of spending your earned income to acquire liabilities, you can build wealth slowly by purchasing income-generating assets.

Here’s a quick breakdown of how assets and income can work based on the financial decisions of different people:

Make money work for you by investing it in income-generating assets. You can also check out your net worth with our Best Net Worth Tracker here.

How Liabilities and Expenses Work Together

Liabilities are the debts you owe others, while expenses are costs of items you consume daily and payment can be immediate through cash.

Liabilities are listed on the balance sheet, while expenses are included on the income statement. They may seem completely different, however, they correlate with one another.

If they surpass your income, then you have a deficit that can eventually evolve into debt. As a result, your total liabilities will end up increasing.

An increase in expenses can eventually increase your liabilities if they are still due past the specified time. By successfully managing your expenditure, you can significantly reduce your liabilities or debt.

Reducing your expenses to increase your income can help you pay off some of your debts, lowering your overall outstanding debts.

Special Considerations

A personal financial statement gives you some insight into the assets that you own and the liabilities that you owe to different organizations.

Examples of such assets include retirement accounts, checking accounts, savings accounts, and trading accounts. On the other hand, a personal financial statement also breaks down liabilities such as credit card debt, back taxes, and personal loans.

Not to mention, you can also create a joint personal financial statement with your spouse that will help you know your financial state and make a solid financial plan.

If you are married, your financial statement can also cover your partner’s assets and liabilities. It will help you calculate your total net worth.

Moreover, your net income and liabilities can also be listed on a personal financial statement. While this personal financial document gives you insight into your financial situation, some items cannot be listed on a personal financial statement.

Examples of such items include:

• Rented things
• Personal properties
• Business-related liabilities and assets

A personal statement gives you some insight into your financial position, making it easier for you to manage your assets, liabilities, income, and expenses. Once you get insight into your financial condition, you will be able to plan towards your financial goals. You can sample personal financial statement from different templates.

A personal financial statement template shows you the components that should be included in your own statement. Not to mention, a personal financial statement example can guide you as you are creating your own statement.

To continue learning about financial literacy, see the following articles in the series:

• Good Debt vs. Bad Debt: Know The Difference
• How To Create A Personal Balance Sheet
• Is It Better to Put a Large Down Payment on a House
• Dave Ramsey vs. Robert Kiyosaki: Who Should You Listen To?
• Personal Income Statement
• How to Use Credit to Build Wealth

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