A balance sheet is a financial statement that takes a point-in-time picture of the financial state of the company, by listing all assets owned and all liabilities owed. The other important financial statement is an income statement, but in this lesson, we’ll focus on what a balance sheet can tell you about your financial situation and how to make one.
Personal balance sheet is a useful financial statement that you can use to calculate your net worth. It’s also a way to organize your assets and liabilities in an organized format. With that information, you’re able to make informed decision about how to budget discretionary income and check the temperature of your financial health.
What Does a Balance Sheet Tell You ?
The balance sheet is like taking a snapshot of your financial situation. It answers the question: ‘What would you have left if you sold everything you owned and paid off all your debt?’ That value – your net worth – gives you important information when you are making financial decisions in your life, such as whether to make an investment, take out a loan, or prepare for retirement.
When you have a negative or low net worth, you’ll probably want to spend more of your discretionary income on paying down debt. With a higher net worth, you are able to be more flexible with your extra income – spending it or investing it in your future.
Your net worth is also an important consideration when lenders decide what interest rate to charge on your loans. The higher you’re net worth, the more comfortable a lender will be, which means lower interest rates.
The difference between your assets and liabilities is called your net worth.
Basically, your net worth is how much cash you would have if you sold all of your assets and paid of all your debt. Hopefully your net worth is positive, but it isn’t for everyone, and this is okay. It’s important to remember in personal finance to consider your stage of life. When you are younger, you may be paying off different types of loans. Over time, as you pay down these loans, your net worth should rise.
Personal Balance Sheet (Example) As on DD/MM/YYYY
|Gold and Ornaments||10,00,000||Net Worth||40,00,000|