Personal financial statements are essential to the financial planning process. Without these statements, it is difficult to help an individual to achieve his or her financial goals and objectives.

A. Statement of financial position
Also known as a balance sheet, a statement of financial position shows a person's assets, liabilities and net worth as of a given date. Think of it as a snapshot of an individual's financial condition at a given moment in time.

Assets appear first on the statement of financial position with the assets listed in order of liquidity, beginning with cash accounts. Listed next would be other assets that could be liquidated quickly, if necessary, such as mutual fund or stock shares. Assets that would take time to liquidate, such as real estate or ownership of a closely held business, would appear near the end.

Listed alongside each asset is the estimated value of that asset. The value of each asset is added to come up with a total assets figure.

Liabilities appear second on the statement of financial position with the individual liabilities appearing in the order they come due. Current liabilities, those that are due within one year, would be listed before noncurrent liabilities, which are those that are not due for more than one year.

As with assets, listed along each liability is the estimated value of that liability. The value of each liability is added up to come up a total liabilities figure.

Total liabilities are subtracted from total assets to determine an individual's net worth. If liabilities exceed assets, an individual would have a negative net worth.

Year ending Dec. 31, 2006

Cash accounts Short-term debt
Checking account $2,400
Credit cards $2,450
Money market 16,345 Home equity LOC 6,320
Total $18,745 Total $8,770
Investment accounts Long-term debt
S&P 500 Index fund1 $23,976 Auto loan $13,000
Roth IRA - James 18,765 Mortgage3 230,000
Roth IRA - Susan 16,543

401(k) - James
98,654 Total $243,000
Total $157,938 TOTAL LIABILITIES $251,770
Use assets
Autos 18,976
Personal property 35,000 NET WORTH $282,889
Residence2 304,000
Total $357,976
TOTAL ASSETS $534,659 AND NET WORTH $534,659


2 Originally purchased 5 years ago for $249,500

3 Fixed rate loan, 6.5%, 25 years remaining

Statement of Cash Flow

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