Personal Financial Statement: Definition, Uses, and Example

What Is a Personal Financial Statement?

A personal financial statement is a document that outlines an individual's financial position at a point in time based on their asset and liabilities. The statement typically includes general information about the individual such as their name and address along with a breakdown of their total assets and liabilities.

The statement can help individuals track their financial goals and wealth and it can be used when they apply for credit.

Understanding the Personal Financial Statement

Financial statements can be prepared for either companies or individuals. An individual’s financial statement is referred to as a personal financial statement and is a simpler version of corporate statements. Both are tools that can show the financial health of the subject.

A personal financial statement shows the individual's net worth: their assets minus their liabilities. Their net worth reflects what that person would have left in cash if they sold all their assets and paid off all their debts. The financial statement would indicate a negative net worth if their liabilities were greater than their assets. The individual would have a positive net worth if they had more assets than liabilities.

Keeping an updated personal financial statement allows an individual to track how their financial health improves or deteriorates over time. It can be a valuable tool when consumers want to change their financial situation or apply for credit such as a loan or a mortgage. Knowing where they stand financially allows consumers to avoid unnecessary inquiries on their credit reports and the hassles of declined credit applications.

The statement also allows credit officers to easily gain perspective into an applicant's financial situation to make an informed credit decision. The individual or couple may be asked to provide a personal guarantee for part of the loan in many cases or they may be required to put up collateral to secure the loan.

Special Considerations

A personal financial statement is broken down into assets and liabilities. Assets include the value of securities and funds held in checking or savings accounts, retirement account balances, trading accounts, and real estate.

Liabilities include any debts the individual may have including personal loans, credit cards, student loans, unpaid taxes, and mortgages. Debts that are jointly owned are also included. Married couples can create joint personal financial statements by combining their assets and liabilities.

Income and expenses are also included if the statement is used to obtain credit or to show someone's overall financial position. This can be tracked on a separate sheet or an addendum called the personal income statement that includes all forms of income and expenses, typically expressed in the form of monthly or yearly amounts.

These items are not included in a personal financial statement:

• Business-related assets and liabilities: These are excluded unless the individual is directly and personally responsible. The loan would be included in their personal financial statement if someone personally guarantees a loan for their business, similar to cosigning.
• Rented items: Anything that's rented isn't included in personal financial statements because the assets aren't owned. This changes if you own the property and rent it out to someone else. The value of the property is included in your asset list in this case.
• Personal property: Items such as furniture and household goods typically aren't included as assets on a personal balance sheet because these items can’t easily be sold to pay off a loan. Personal property with significant value such as jewelry and antiques may be included if their value can be verified with an appraisal, however.

Your credit report and credit history are big considerations when it comes to getting new credit and every lender has different requirements for issuing credit. You may still be refused a loan or credit card if you haven't paid your previous debts on time or if you have too many inquiries on file even if you have a positive net worth and more assets than liabilities.

Example of a Personal Financial Statement

Let's assume that River wants to track their net worth as they move toward retirement. They've been paying off debts, saving money, and investing, and they're getting closer to owning their home. They update the statement each year to see the progress they've made.

They would list all their assets: $20,000 for a car, $200,000 for their house, $300,000 in investments, and $50,000 in cash and equivalents. They also own some highly collectible stamps and art valued at $20,000 that they can list. Their total assets are therefore $590,000.

As for liabilities, River owes $5,000 on the car and $50,000 on their house. River makes purchases with a credit card but they pay the balance off each month and never carry a balance. River cosigned a loan for their daughter and $10,000 remains on that. It's not River's loan but River is still responsible so it's included in the statement. River's liabilities are $65,000.

River's net worth is $525,000 when we subtract their liabilities from their assets. River can use this information and the statement as a whole if they want to apply for any other credit although they use it mainly to track their financial health.

The Bottom Line

A personal financial statement is a spreadsheet that outlines your financial position based on a breakdown of your assets and liabilities. Your net worth is determined by subtracting your liabilities from your assets. A personal financial statement can help you track your financial goals and wealth and it can be helpful when you apply for credit and loans if it's in good shape.

Income and expenses can be included on a financial statement, too, but they're generally placed on a separate sheet known as a personal income statement.