Similar to how a balance sheet and income statement are used to help a business understand how they are performing, a personal financial statement can do the same for an individual or married couple. These statements summarize your assets and liabilities, giving you a glimpse at your total net worth.
Why would you need to have a personal financial statement (also referred to as a PFS) and know your net worth? Having a PFS prepared can help a person to formally design and organize their financial affairs. It can also help guide your investment goals and help you approach banks for financial loans.
Here’s a brief overview of why you may need to have a personal financial statement on hand and what you should include in it.
Personal Financial Statements: Reasons You May Need One On Hand
Many individuals need personal financial statements prepared for a variety of reasons, like income tax planning, estate planning, retirement planning, and other situations when your financial position may be requested. It’s also essential when applying for a loan, as these statements measure your overall financial strength. Lenders will use this information when determining whether they will approve you for a loan or not.
There are many other personal benefits to knowing your net worth, unlike the examples above in which someone else is requiring the information. Your net worth can help you evaluate your current financial health, as well as help you take steps toward your financial goals. Tracking your net worth over some time, like months or years, can show you whether you are moving forward or still have more work to do. If your goal is to increase your wealth, a PFS might be beneficial for you to maintain regularly.
What Should You Include in Your PFS?
In short, you should include everything. This means your personal assets, investment assets, and your liabilities. Also, remember to be fair and realistic when computing the values of your assets.
Your personal and investment assets include things like your cash, homes, vehicles, 401ks, IRAs, health savings accounts, stocks and bonds, ownership interests in businesses, investment real estate, etc.
In the same way that you want to include all of your assets, you should be sure to include all liabilities as well. Some liabilities may include things like student loans, mortgage loans, auto loans, credit card balances (personal and business), taxes, medical bills, personal loans, etc.
Whatever Your Primary Focus Is for Needing a Personal Financial Statement, MGA can help
There’s a reason why business owners hire CPAs and other professional advisors to help them make significant decisions. The way you manage your personal finances should be no different.
As we mentioned previously, when applying for a loan, any lender will ask to see your personal financial statement. With a qualifying PFS in hand, you are setting yourself up for success. You have borrowing power. We also recommend keeping your PFS up-to-date, so when your next acquisition presents itself, you will be ready to act.
If you have any questions or if we can help you manage your personal finances, please reach out. Our assurance team can prepare the statements that you need to meet your financial goals.