CuVantis Education Series

What is a Personal Balance Sheet?

A Personal Balance Sheet is one of two basic financial statements (along with the Personal Cash Flow Statement) that are vital to your financial security. A personal balance sheet is simply a listing of everything a person or family own (their assets) versus everything they owe (their debts).  It’s a snapshot of your financial status at a given point in time.  Typically, you’ll want to prepare a personal balance sheet at least annually and compare them from year-to-year to see your progress.

Why is it important to keep a Personal Balance Sheet?

While many people tend to judge their financial progress based on increases in income, financial health is determined not by what you make, but by what you keep.  By subtracting your total debts from your total assets you can determine your financial Net Worth.   An increasing net worth from year-to-year indicates you are keeping more of your income and accumulating wealth that can be used toward achieving your financial goals, while a decreasing or negative net worth may be a warning that your financial house is not in order.

What are the different types of Assets and Debts?

Both assets and debts can be categorized by the timeframe in which they will be used or paid off, and by the tax treatment they receive. Short term assets (i.e. – Cash Flow Assets) and short-term debts typically receive no favorable tax treatment while longer term, qualified investment assets (like IRA’s and 401k’s) and longer-term debts (like first or second mortgages) may carry certain tax advantages.  Understanding the timeframe and tax treatment of various assets and debts on your balance sheet will help you to maximize your net worth over time.

For help creating your own personal balance sheet, check out our Net Worth Calculator or complete the form below to schedule an appointment with one of our advisors.

The information presented here is for educational purposes only and should not be considered financial, tax or investment advice.  Please consult a qualified professional.

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