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Personal Balance Sheet: Uses & Examples

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  • 0:01 Defining Balance Sheet
  • 0:34 Preparing Your Balance Sheet
  • 1:41 Examples of Assets &…
  • 4:10 What Does a Balance…
  • 4:57 Lesson Summary
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Lesson Transcript
Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and a PhD in Higher Education Administration.

A balance sheet is one of the primary financial statements you can adapt to your personal finances to gauge your financial health. In this lesson, we'll discuss what a balance sheet can tell you and how to prepare your own.

Defining Balance Sheet

In business, balance sheets are one of the two most important financial statements for anyone interested in the financial health of the company. These parties may include managers, shareholders, and anyone else interested in how the company is doing. 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.

Preparing Your Balance Sheet

Let's start with preparing your balance sheet. A personal balance sheet typically isn't a difficult document to prepare. In summary, all you do is list all of your assets - anything you own that has financial value - and all of your liabilities - any debt or financial obligations you have the responsibility to pay. Here you can see an example of a simple balance sheet:

Personal Balance Sheet Example

After you list your assets and liabilities, you list the values of the assets and the balance of the liabilities, and then total up both categories. These numbers will rarely be the same; you don't want them to be. 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 off 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 student loans - something that would show up on your balance sheet as a liability but not have a corresponding asset. Over time, as you pay down that loan, your net worth will rise.

Examples of Assets and Liabilities

Just to make sure we are on the same page, let's talk about some examples of personal assets and liabilities, as well as the best way to value them on your balance sheet. Remember, the idea of a balance sheet is to get an idea of your net worth, so you don't really need to consider how difficult it might be to turn an asset into cash, just include everything that realistically has some amount of cash value.

The first few lines of your assets will probably be your bank accounts and any investments you have - those are obvious - they are cash. Then, just look around. Your house is an asset. So is your car, your TV, your furniture, your electronics, your rare book collection, and anything else you own.

Even if you don't own 100% of an asset, include it on your balance sheet. This is most likely the case with your house and car. You can include them because you'll be listing the percent you don't own (the balance on the loan) on the liabilities side of the balance sheet. So, if you have a $15,000 car and still owe $10,000 on the loan, you'll end up listing the car as an asset and the loan as a liability, and in the end, it will add $5,000 to your net worth ($15,000 - $10,000).

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