How to Create Your Personal Balance Sheet

A Simple Guide on How to Create Your Personal Balance Sheet

Preparing a personal balance sheet is very useful to judge your own financial position and determine your net worth. You will find directions about creating one, in this Buzzle article.
Managing wealth can be very difficult for some, if they lack financial planning and management skills. They may end up spending a lot of money and create unnecessary debts that lead to high interest payments. To avoid this, every person should make sure that his cash flow is proper and well controlled.

When analyzing large companies, we look at their balance sheet to determine their financial strength. A strong balance sheet indicates a large amount of cash and a lot of assets, along with liabilities that are within strict control. In the same way, preparing a personal balance sheet can help you be aware of your financial position and set realistic goals for the future.

Creating Your Own Balance Sheet

As in the case of a company balance sheet, your personal one will also have two columns - assets and liabilities. Assets are the things you own or which increase your total worth and liabilities are the amounts which you owe to outside agencies. To be financially secure, you need to have strong assets and very few liabilities. So, prepare two columns, listing your assets and liabilities, when you start with your balance sheet preparation.

Cash in hand and bank would be the first particular on the assets side of the sheet. Money in the savings and checking accounts will also be on the assets side. If you own any machinery or products, then they too will be included on the assets side. Their valuation needs to be done by considering their current value and not the one for which you bought them. Properties - residential or commercial, will also be your assets. An automobile would also be an asset for you.

The assets side will also contain all your investments such as 401(k), company stock plans, mutual fund investments, shares of companies held by you, your investment in gold and other metals. Any other investment, apart from the above mentioned ones would also be included on the assets side. The sum of all individual assets will give you the total assets in monetary terms.

As discussed before, the next column will be that of your liabilities. In this column, you need to list down all your dues, one after the other. The liabilities will be classified as current liabilities and long-term liabilities. The current balances, which are unpaid, will be included in the current liabilities, whereas long-term debts, auto loans, and mortgage loans will be on the liabilities side. The sum of all the liabilities will give you the total liability.

For a sound financial position, the liabilities should be less, as compared to the assets. To calculate your net worth, you need to subtract the total liabilities from the total assets. The formula for net worth has been given below.

Net worth = Total assets - Total liabilities.

Hopefully, this explanation of the personal balance sheet and how to calculate your net worth will help you achieve your financial goals effectively. So, start with the calculations and think of ways to improve your net worth.