Heather van der Hoop (she/her) has been editing since 2010. She has edited thousands of personal finance articles on everything from what happens to debt when you die to the intricacies of down-payment assistance programs. Her work has appeared on The Penny Hoarder, NerdWallet, and more.
In This Article In This Article DefinitionA personal financial statement is a physical snapshot of your assets compared to your liabilities. It gives you a real-time view of your wealth and helps you assess your current financial situation. While it's beneficial for your own financial growth, lenders may ask for a personal financial statement if you’re applying for a loan
A personal financial statement is a physical snapshot of your assets compared to your liabilities. It gives you a real-time view of your wealth and helps you assess your current financial situation. While it's beneficial for your own financial growth, lenders may ask for a personal financial statement if you’re applying for a loan
But what are assets and liabilities? Your assets refer to all items you can easily convert to cash, including:
Your liabilities refer to all the debt you owe. They can be:
If your total assets are higher than your liabilities, your personal financial statement reflects a positive net worth. This is a sign that you’re building wealth and signals to lenders that you may be a trustworthy borrower.
If your liabilities are higher than your assets, however, you have a negative net worth. This signals you may be living paycheck to paycheck or spending more than you earn, and you could be seen as a high-risk borrower to lenders.
If you are in a committed partnership or married and share assets, you and your partner can combine assets and liabilities to create a joint personal financial statement.
Suppose you have $200,000 worth of assets. This includes your house, a bank account, and a retirement account. Now let’s say you have $130,000 in liabilities. This includes your mortgage, some student loans, and credit card debt. In this case, your net worth is $70,000.
Here’s an example of how your personal financial statement may look in spreadsheet form:
Your personal financial statement will be a lot more complex if you’re creating one for your business. For small business owners, the Small Business Administration (SBA) has a sample personal financial statement you can use as a guide.
Wealth is not defined by the income you accumulate, but by your net worth. A personal financial statement is important because it shows if your net worth is improving or decaying over time. It sheds light on your entire financial picture so you can see if you’re moving closer or farther away from your goals.
For example, suppose your financial goal is to retire early. You’ve officially paid off your debt (minus your mortgage), but you’re not sure how close you are to reaching your retirement goals. You decide to create a personal financial statement to see where you stand.
Below is a guide to how you would fill out your personal financial statement, using the above example.
Most assets have a clear dollar value (i.e., you can look in your bank account and see what your balance is). But some assets—such as your car, home, or an art collection—may require an appraisal first.
If you’re creating a personal financial statement for a lender, it’s important to be as accurate as possible (and get an appraisal if you’re unsure of the amount). But if it’s just for your own personal records, an educated guess may be fine. This may look like:
Total assets = $950,000
Anything you rent does not count as an asset because you don’t own it. So if you rent a house or lease a car, leave it off your personal financial statement.
Your debts are your liabilities. In this example, we’ve stated you’ve paid off all your debt except your mortgage, so that’s the only thing listed here.
Total liabilities = $300,000
If you pay your credit card bill off in full every month, it’s not considered debt, so don’t include it on your personal financial statement.
In this example, when you subtract the assets from your liabilities, you see that your total net worth is $650,000.
Now, suppose you know you need $1.2 million to reach financial freedom and retire early. Your personal financial statement would show that you’re $550,000 away from your goal. You could then update it again next month to track your progress, and make changes to your spending and saving as needed.
Personal financial statements help individuals understand the overall state of their personal or business finances, and calculate their net worth. They can also be used as a tool when applying for credit such as a mortgage, personal loan, or business loan. To get a snapshot of your financial health, it’s a good idea to create a personal financial statement.
Even if you have a positive net worth, it is not guaranteed you will receive a loan you apply for. Credit history and past debts are also taken into consideration by lenders.
The biggest drawback of personal financial statements is that it’s a frozen snapshot of your financial health at any given time. For it to have a positive impact, you have to update it regularly.
The good news is that there are many online tools you can use to automate your personal financial statement. Two popular options include:
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