What is a 'Personal Financial Statement'

A personal financial statement is a document or spreadsheet outlining an individual's financial position at a given point in time. A personal financial statement will typically include general information about the individual, such as name and address, along with a breakdown of total assets and liabilities.

BREAKING DOWN 'Personal Financial Statement'

A financial statement can be prepared for either a business or individual. Either way, it shows the financial health of the entity named in the statement. An individual’s financial statement is referred to as a personal financial statement and it is a simpler version of the corporate statement.

The personal financial statement is broken down into assets and liabilities. Assets, detailed on the right of the statement, would include the value of securities and funds held in checking or savings accounts, retirement account balances, trading accounts and real estate. Liabilities are listed on the left and cover the individual’s personal loans, such as credit card balances, unpaid taxes and mortgages. A married couple may create a joint personal financial statement that shows all the assets owned and the debt incurred.

Business-related assets and liabilities should not be included in a personal financial statement. In addition, rentals and leases are not included in personal financial statements because the assets rented or leased are not owned by the individual. Personal property, such as furniture and household goods, are typically not included as assets on a personal balance sheet because these items can’t be sold off to pay a loan. However, personal property with significant value, such as jewelry and antiques, can be included if the value can be verified with an appraisal.

An individual’s financial statement shows his net worth, that is, assets minus liabilities. In other words, the net worth reflects what an individual will have in cash if he sold off all his assets and paid off all his debts. If debt is greater than assets on the personal financial statement, then the individual has negative net worth. For example, if the sum of an individual's credit card bills, utility bills, outstanding mortgage payments, auto loan bills and student loans is higher than the total value of his cash and investments, his net worth will be negative. In this case, the individual may file for Chapter 7 bankruptcy protection to eliminate some of the debt and to prevent creditors from trying to collect on the debt. However, some liabilities, such as child support, alimony and taxes, cannot be discharged.

Personal financial statements are most often used when an individual is applying for credit, such as loans or a mortgage. The financial statement allows credit officers to easily gain perspective into the applicant's financial situation in order to make an informed credit decision. In many cases, the individual or couple may be asked to provide a personal guarantee for part of the loan, or may have to pledge some of the personal assets as collateral to guarantee the loan.

By comparing personal financial statements over time, an individual can track how his financial health improving or deteriorating.

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