How to Create a Personal Balance Sheet

Improving your financial situation often starts with setting specific goals. A personal balance sheet can help you do that, and putting one together is simpler than you might think.

What is a personal balance sheet, and how do you make one?

A personal balance sheet is a list of your assets, a list of all your debts (or liabilities), and the difference between the two totals. It provides a snapshot of your current finances and net worth at a particular point in time.

Creating one involves documenting everything from your available cash to any vehicles, and then subtracting liabilities like mortgages and student loans.

Read more >> What is liquid net worth — and how to calculate yours

How a personal balance sheet can help your finances

If you’re not overly concerned with your net worth, you might wonder why you should take the time to document all of your current assets and liabilities. These are a few reasons:

It can expose potential problems that might be hindering your growth

Your balance sheet shows you whether you’re building wealth over time or spending most of what you make.

For example, if you have a higher income, you might feel like you’re financially stable or even wealthy. But if your personal balance sheet shows that your debt is growing faster than your savings, you’ll know that something needs to change.

It helps you set goals and track your progress

Once you have your financial information in front of you, it’s easier to set goals. For instance, if your debts are outpacing your earnings, an approach some people take is directing a set percentage of each check — like 10% or 15% — toward savings.

After you’ve set a goal, you can track your progress by regularly recalculating your balance sheet. If your net worth is growing, you’ll know that you’re doing something right.

It may be a necessary part of qualifying for loans

Sometimes, a lender might want to see your personal balance sheet before extending credit. Your personal balance sheet gives the lender a sense of your financial health and helps them assess how easily you’ll be able to repay.

For instance, the Small Business Administration (SBA) uses personal balance sheets to assess applicants’ repayment ability and overall creditworthiness before approving them for many types of business loans.

Read more >> What is a personal cash flow statement?

‍How often should you update? Every 6 to 12 months is enough for most people. If you're paying down debt fast and want to watch the number move, go quarterly.

How to build a personal balance sheet step-by-step

The concept behind your personal balance sheet is simple: documenting the value of everything you own and everything you owe. The difference between the two will show you your net worth as it stands today.

Before you sit down to create your balance sheet, gather recent financial statements from bank and investment accounts. Check current balances on loans, credit cards, and other debts. If you own valuable property, like a home, a vehicle, or jewelry, make sure you know its current market value before you start.

Once you have all the information you need, you can start creating your balance sheet in three key steps.

Step 1: List all of your assets

The first step is listing all of your assets along with their values. Your assets include your cash, investments, and valuable property. These are some common examples:

• Any cash you have available
• Checking accounts
• Savings accounts
• Retirement accounts like 401(k)s and IRAs
• Other investments, including stocks, bonds, and mutual funds
• Your home or any other real estate you own
• Your vehicle(s)
• Jewelry, fine art, and any other valuable personal property

After you’ve written down all of your assets and values, add up the total and record it.

Step 2: List all of your liabilities

In this section, list all of your debts and the current balance on each account, including:

• Mortgages, home equity loans and other debts secured by your home, or other real estate
• Car loans
• Personal installment loans
• Credit cards
• Student loans
• Unpaid medical bills
• Other debts, including unpaid taxes or child support

It can feel discouraging to work on debts you owe, especially if you’re already worried about money. Keep in mind that these are just data points, and looking closely at them can help you start moving your finances in the right direction.

When you’ve written down all of your liabilities and the value of each, add them together and note the total.

Step 3: Calculate your net worth

To calculate your net worth, subtract your liabilities from your assets. That number is your net worth. If your net worth is positive, it means that the value of your assets exceeds the value of your debts.

A negative net worth means that your total debts exceed your assets. If your net worth is negative, you might understandably be disappointed. But remember: Your personal balance sheet just shows you your finances as they stand right now. It doesn’t say anything about your financial future, and it has nothing to do with your worth as a person.

Read more >> How much should I be spending each month?

Example balance sheet

Imagine you’re creating a personal balance sheet. You start by listing all of your assets, which could include:

You then list your liabilities, such as:

Finally, you subtract your liabilities from your assets to reveal a net worth of $100,000.

The line your balance sheet doesn’t show

A balance sheet tells you where you stand. What it can’t show is how a lender sees you. Someone with solid assets and no credit history can still pay more than someone with modest savings and years of on-time payments.

If your credit history is thin or limited, building it is the piece that can improve every future line on your balance sheet: a lower rate on a car loan, a smaller deposit on an apartment, or cheaper financing when you need it.

Kikoff’s Credit Account reports your on-time payments to all three credit bureaus, building the payment history that carries the most weight in your score. No hard credit check required.