Excel template personal financial statement

What is a Personal Financial Statement: Evaluate Your Financial Position

Article written by: Deeksha Negi

Evaluating your financial state helps you to identify your opportunities to create a stable financial future. A personal financial statement (PFS) provides a summary of your financial condition which can help you plan your finances. Considering this, here we will explore what is a personal financial statement, how it is to be used and how to create your own PFS that will help you determine your net worth. If you would like firsthand guidance in how to create a PFS and use it to formulate your comprehensive financial plan, it is suggested to consult and seek help from a credible financial advisor.

Definition of Personal Financial Statement

A PFS is known to be documentation or a set of documentation that summarizes an individual's or family's financial situation at a given instant. These financial statements are usually objective-oriented and can help families or even individuals reach their financial goals. A PFS usually constitutes an income statement and a balance sheet section. The balance sheet module of a PFS sheet presents your liabilities and assets, or net worth. The income statement section lists out all stock variables affecting an individual's economic situation. Although one can create more elaborate personal financial statements, this article focuses on understanding and developing an uncomplicated version.

What are the Uses of Personal Financial Statements

A PFS (personal financial statement) can be an extremely helpful tool in planning out a person's finances. As mentioned earlier, PFS is normally goal-oriented and helps one reach her or his financial objectives, especially for young individuals entering the workforce for the first time. For someone inexperienced in financial planning, a personal financial statement is an excellent point, to begin with, because it helps you understand your financial situation at the moment as well as your future options. Moreover, creating a personal financial statement on Microsoft Excel can be an easy place to start. For example, a PFS is frequently put to use when an individual is applying for a personal loan. The potential borrower might be asked by the lenders to generate a personal financial statement to understand the borrower’s debt to income ratio, which is a factor to determine the amount and interest rate that they will receive.

Why Create a Financial Statements in Microsoft Excel

There are various personal financial statement generator apps available online. However, for someone who only has a basic idea about what a personal financial statement is, using Microsoft Excel is a good place to start. Some of the reasons why MS Excel is a good choice are as follows:

1. MS Excel is easy to use. Hence, it is easy to add data, make amends, etc.
2. Cloud / Online services such as Google Drive or iCloud provide the opportunity for the user to access his or her financial statement(s) remotely.
3. Excel provides tools for financial planning. As one gets experienced in financial planning, she or he can make use of the available tools.

What Should Be Included in a Personal Financial Statement

As mentioned previously, there are two main sections of any personal financial statement. The definition and examples of both core sections are mentioned below.

Balance sheet: It includes all your liabilities and assets. A balance sheet may include an individual’s mortgage, home, car, taxes, auto loan, savings accounts,  investment accounts, credit card balances, and more. It is to be noted that the balance sheet includes the cumulative amounts due or the overall amount of each account. However, it does not include money flow.

Example of a Personal Balance Sheet: 

The above sample personal balance sheet outlines Lisa’s financial position as of April 21, 2021. As it can be seen from the personal balance sheet, Lisa’s sum assets are worth $363,300. Moreover, her total liabilities are $290,900. Thus, from analyzing the MS Excel balance sheet, we see Lisa’s net worth is $72,400. The above simple version of the personal balance sheet can be altered as per one’s requirements. For example, Matt might have 6 savings accounts, 4 checking accounts, 5 cars, and 4 houses. With a few amendments, the balance sheet template used by Lisa can also be used by Matt.

Income statement: It includes an individual’s salary, commissions, and bonuses. Moreover, it may include any interest or dividends earned or any other income. Moreover, the income statement includes your insurance premiums, income taxes and other regular cash outflows. The monthly paychecks, grocery bills and other payments to be paid per month that will be detracted from your monthly income may be included in this statement.

Example of an Income Statement Sheet:

The above sample personal income statement lists Lisa’s monthly salary and expenses.

As it can be seen from the above income statement, Lisa’s sum monthly salary is $15,000. However, her aggregate monthly expenses are $8,350.

What Should Be Excluded From a Personal Financial Statement

After discussing what is a personal financial statement and the information that should be included in it. This section will discuss the information that should not be in your financial statement. Your PFS is sectioned into assets and liabilities as well as income and expenses. However, there are several things that you will not include in it. 

If you are a business owner or have business-related liabilities and assets, these would not be included on your PFS unless you have direct responsibility for the expenses. An example of this is if you are getting a personal loan for your business. Furthermore, any rental amount will not be included on a PFS, because the asset is not owned by the person. For instance, rent on an office building. However, if you have an office place and rent it out, the rent you get will be treated as your income and would be included in a PFS. Additional things that would not be included on a PFS include small personal materialistic assets such as household goods and furniture. Even though these may be a big expense, they are not typically worthy enough to pass as an asset.

How to Determine Your Net Worth Using PFS

Estimating one’s net worth is the best way to comprehend exactly what their starting point is, in any financial plan they decide to develop. A personal balance sheet estimates the net worth of an individual by analysing their financial liabilities (what they owe) with their financial assets (what they own). The difference between these two is the net worth. Please note, the net worth can be negative.

To start with, pull together all of the financial information that you have available. For instance, your latest bank statements, as well as the principal balance of any loans or mortgages you have. Once you have all the required information available, start creating your balance sheet by listing all of your assets (tangible and financial assets) with the values. Some of the common assets categories are as follows:

• Cash (in the money market accounts, banks or CDs)
• House value (the resale cost of your house)
• All investments (mutual funds, individual securities, college savings accounts)
• Personal Property Value (resale value of household items, jewellery, etc)
• Vehicle value (the resale cost of your car)
• Other assets

The total of all of those amounts is the total value of your assets. Your goal should be to constantly increase your assets. Alongside, you can take a look at your liabilities, which should be everything you owe. Some of the common liability categories are as below:

• Student loan
• Car loan
• Remaining mortgage balance
• Credit card balances
• Any other personal loans

The aggregate of all of the amount you owe is your liabilities. Your total liabilities will decrease as you start to pay down your debt. Your net worth is the difference between your liabilities and your assets. By decreasing your liabilities, increasing your assets, or by doing both, you can start to increase your net worth.

Example of a Personal Financial Statement To Determine Net Worth

After getting an understanding of what a personal financial statement is and its importance, let us look at an example. For instance, Tom is a youthful working professional and desires to start financial planning for his retirement. He has begun saving with his company’s 401(k) match, purchased his first house and has a car that he likes. However, he wants to be sure that he is financially secure for retirement, so his financial advisor has asked him to prepare a personal financial statement to understand where he stands financially at the moment.

Tom's house is worth $360,000, and the car he owns is worth $27,000. After a few years of working hard, he has $63,000 in 401(k) funds and investments. Furthermore, he keeps about $4,500 in an emergency fund. In total, his assets are totalled to be $454,500.

For liabilities, he owes $180,000 on his house, $15,000 on his car and he has about $3,600 in credit card debt. Tom pays the minimum payment or balance on individual liability every month. His liabilities total $198,600.

To summarize, his assets are worth $454,500 but he owes a sum of $198,600. Hence, when we deduct his liabilities from his assets, his net worth is $255,900.

Summarizing Personal Financial Statement

This article has covered what is a personal financial statement, why to use it, what should be included and excluded from it and how to determine your net worth. For people who are looking to borrow or invest money, a personal financial statement (PFS) is a common starting point. It helps both, the financial institution and the individual to understand one's financial ability and what his or her opportunities are in the future. Numerous financial advisor matching tools available online help you get a financial advisor who is right for you. A financial advisor helps in making educated decisions regarding your wealth creation, assets and liabilities.