Perfect Your Finances with a Personal Balance Sheet

A good way to chart your progress toward a healthy financial future is to prepare a personal balance sheet every year. It will give you a scorecard to measure how you’re doing.

How to chart the health of your finances

A balance sheet shows your assets and your liabilities. Think of them as what you own and what you owe others. The difference between them is your net worth, or the value of your assets (such as homes, bank accounts and investments) minus your debts (such as mortgages, loans and credit cards).

Here’s a quick guide to creating a useful personal balance sheet:

  • Pick a date. A good idea is to choose a day at the end of the year or the end of a quarter when you’ll have statements available for all your financial accounts.
  • List all your financial assets. Include bank accounts, balances in IRAs and retirement plans, stocks, mutual funds, investments, and any other assets. Remember to include the value of your home and any other valuable property.
  • Assign value. Assign a value to your non-monetary assets, such as your house, car and personal belongings. For most purposes, it’s not essential that you find an exact value. Using the same approach from year to year is more important.
    To value your house, look for comparable properties and talk to a realtor. Another approach is to use the assessed value shown on your property tax statement. This is generally less than market value, but should reflect annual changes in the local property market.
    For personal property, make a reasonable estimate. Consider reviewing online resources for used cars and other property sold on sites like ebay and Amazon. Remember to use the same sources each year to help you create a reasonable constant for year to year comparisons.
  • List your liabilities. Now put together a list of everything you owe others. This includes your mortgage balance, student debt, and any other loans. Include credit card debt, car loans, boat loans, and any other personal debt.
  • Total up your assets and liabilities. The difference between the two totals is an estimate of your net worth. Hopefully it shows an increase from the previous year.
    If your net worth is not increasing, use your balance sheet to see where you’re falling short. Look for ways to boost the growth of your assets, and create a plan to reduce your liabilities.