As featured in our previous newsletter: “Understanding and Evaluating your Personal Financial Statements,” we learned that personal financial statements refer to a document or spreadsheet that highlights an individual’s financial position at a given point in time. The statements include information about the individual, such as a name or address, along with a personal balance sheet and income statement. In this article we will explore the content of these statements and how they can assist you in strategizing and evaluating your overall financial plan.
What should be included in Personal Financial Statements?
There are two core sections of any personal financial statement:
Balance Sheet
A balance sheet includes all your assets, liabilities, and resulting net worth or equity. Typical asset items may include your physical cash, checking and savings accounts, investment accounts, retirement accounts, certificate of deposit, real estate owned including personal residence, and personal property including vehicles, jewelry, and other significant items, such as collectibles. Typical liability items may include your mortgage, home equity loan, vehicle loan, credit card balances, student loans, and other personal or co-signed loans. The net difference between your assets and liabilities is your net worth, which represents your net economic position.
Income Statement
An income statement includes all your revenue and expense items. Typical revenue items may include
items such as your salary, self-employment income, interest and dividend income, capital gain income, rental income, retirement income, and any other type of income. Typical expense items may include income taxes, real estate taxes, rent, insurance premiums, mortgage interest, student tuition, personal loan interest, and other steady cash outflows such as utilities, groceries, auto expenses, entertainment, and a host of other typical budget line items that reduce your monthly income.
The above lists of assets, liabilities, revenues, and expenses are some of the most common types and do not represent an all-inclusive list of items that may apply.
What should not be included in Personal Financial Statements?
Typical items that should be omitted are:
- Business assets and liabilities unless the person is personally liable.
- Loaned assets in which the person does not have legal ownership over the item.
- Personal household items like furniture, which do not have a significant cash value.
Value of Personal Financial Statement
Personal financial statements provide a common starting point for individuals who are looking to invest or borrow money. Com-piling a set of personal financial statements helps both the individual and the financial institution understand the person’s fiscal financial responsibilities as well as aids in long-term financial planning and strategic goal setting.
For more information, contact Joseph M. Becht, CPA, CGMA, Senior Manager, at jbecht@tsacpa.com or 716.633.1373.
