What is a personal finance statement and how to prepare one

By: on 2020-02-24
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What is a personal finance statement and how to prepare one
What is a personal finance statement and how to prepare one

What is called a personal financial statement?

A personal financial statement is a document that has the details of an individual’s assets, liabilities, and net worth. It is nothing but a personal balance sheet, just like a balance sheet maintained by an organization to figure out its net worth. The net worth is calculated through the following equation:

(Assets - Liabilities = Net Worth)

If you are married, then your financial statement would include both you and your spouse's assets, liabilities, and net worth. Your assets may include the home you are living in, your car, investments such as stocks/bonds, securities, etc. Remember, the assets which you don’t own can not be included in your financial statement.

The amount you owe to others will be included in your financial statement as your liabilities. For example, a personal loan or a loan taken to buy a car, etc. is included in your personal statement. Your unsecured debts might also be considered as liabilities and added in a personal financial statement.

These are the main features of a personal financial statement

  • It will contain personal information such as your name, address, etc.
  • The assets will be listed on the right side in a detailed manner, while the liabilities will be listed on the left side of the statement.
  • Assets may include bank account balances, trading accounts, retirement account balances, land, building, and similar information. Liabilities may include credit card balances, personal loans, mortgage, unpaid tax, and more.
  • Personal financial statements can be applied jointly if you are married. The joint personal financial statement may reveal the details of all debts and assets, of both you and your spouse.

Rentals won’t be listed on the personal financial statement, as there is no ownership. Renting a house or leasing a car is a monthly expense, but you don't own those assets, so they don't get included in this statement.

When do you require a personal financial statement?

lenders might want to review your financial statement. In many scenarios, they might ask you to provide a personal guarantee for part of the loan, or you may have to use some of your assets as collateral. The loan might be called a collateral loan.
The personal financial statement shows a picture of your financial status to a lender. The statement reveals how much and what kinds of assets you have. If you are pledging investments (like an IRA or 401k), the bank will want to know the amount of the investment and where it is kept.

What is not included in a personal balance sheet?

There are a few items that personal financial statements or personal balance sheet does not include:

  • Business-oriented liabilities and assets can not be listed in a personal financial statement.
  • The balance sheet also excludes leases and rentals as these are not owned by you.
  • It also does not include personal property such as household goods, furniture, and more.
  • Assets with significant value such as antiques, jewelry, etc. can be included. In that case, the asset value of these items should be verified for appraisal by a certified agency.

How do you prepare a personal financial statement?

Initially, you need to gather information about your assets and liabilities. As already mentioned, the personal financial statement will reveal the assets, liabilities, and net worth at a certain point in time.

So, you need to gather the document with the most recent information you have. When you show your statement to the lender, he will understand that a few specific information may change as you are continuously making personal financial transactions (making monthly payments, paying taxes, etc). Apart from that your investments also show a change over time too.

Before presenting your business plan to a lender, you should analyze your credit profile and prepare a complete credit statement of yourself. The report must include your FICO score, as well as a detailed financial statement.

Details on assets and liabilities you may include in the statement:

  • Cash in a checking or savings account with the most recent balance.
  • An IRA, 401k, or other retirement accounts.
  • Brokerage accounts with an updated balance
  • Latest statement on your home mortgage (copy).
  • The latest statement on your car loan, or other loans.
  • Credit card debt or any other debt in liabilities.
  • Any debt you have jointly with someone else (called a "contingent liability.
  • If you owe money from a small claims judgment or other lien or judgment, include them. They are called public records and should be included.
  • Include unpaid taxes from previous years. These taxes may include federal and state income taxes and any business payroll taxes.
  • Don't include furniture and household goods as personal property.

Now we will check the steps:

  • Step 1 - Complete the information denoting your identity at the top of the personal financial statement, for you and your spouse.
  • Step 2 - List each asset in the right hand section provided
  • Step 3 - List each liability in the given left hand section.
  • Step 4 - Calculate the net worth using the formula (Assets - Liabilities = Net Worth
  • Step 5 - Provide information for all sources of income including salary, commissions, bonuses, interest and dividend, rental real estate, income from business or partnership, and income from an investment.
  • Step 6 - Provide information for all expenses including child care, medical and dental expenses, IRA and college saving plan contributions, income tax payments, property taxes, mortgage payments, and all other expenses.
  • Step 7 - Calculate net income using the formula (Assets - Total expenses = Net Income).
  • Step 8 - Fill out any detailed schedules such as legal claims (like alimony payments), income taxes, and other taxes in the personal financial statement.
  • Step 9 - Provide any other pertinent information in the section provided.
  • Step 10 - Find out if your lender requires a copy of your most recently filed personal or business tax return. Check if signatures need to be verified by your lender.

Last Updated on: Mon, 24 Feb 2020

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