Did you know that according to a survey made to 2,200 people by Personal Capital, 65% of US adults don’t know what net worth means? But even though you may not know what it does, you can measure it with a Personal Balance Sheet.

The world we live in is run by money. The more capital you have, the more you can do. You could invest, purchase houses, etc. You can improve your lifestyle with every penny you earn.

The thing is that people – especially those that don’t know about personal finance – don’t measure how much they spend, which makes getting wealthier a lot harder. You can’t improve what you can’t estimate.

That’s why personal financial statements are so important. They help you see what you owe, what you own, and your accumulated wealth. These documents have a similar use to those that you can find in a business.

They have a similar function but for persons instead of companies.

So, if you’re interested in improving your personal finance, this article focuses on everything you need to know about the personal balance sheet. You can learn to create and manage it. This way, you can separate your assets or liabilities into categories to reduce your obligations and increase your wealth.

Financial statements are documents used to determine the current value of your investments in comparison to your liabilities. With them, you can determine:

• How much debt you own.
• How much money you have available for investments – like starting a business.
• Your current cash flow – both cash inflow and outflow.
• The right amount of money to save each month.

The thing is that not all financial statements do the same thing. You must decide the use you’re going to give to the statement. Based on that, you can create:

• Cash Flow Statement.
• Personal Finance Statement.
• Income Statement.
• Liability Statement.

You can set up your financial goals with all these documents. Monitor your money and build a financial plan that ensures you can use your money wisely.

And the best way to do that is using a Personal Balance Sheet.

The personal balance sheet is a financial statement that you can use to measure your financial position.

The document includes all the assets – like liquid assets – and liabilities. In the end, you have a simple operation to calculate your net worth: assets minus liabilities.

You can create the document as often as you want. It all depends on your needs and the statement’s purpose.

For example, if you want to present your balance to get personal loans and reduce monthly payments, you’d need this document and other financial statements like the Cash Flow Statement.

Instead, you will need a personal balance sheet to ensure you won’t have a negative net worth after selling all your assets and paying the total liabilities.

To determine the net worth in a simple balance sheet, you must consider total assets, the liabilities owed, and the total amount of money you have, subtracting them from the money you’d have from selling all the assets.

So, how can you know which aspect of your life is an asset or a liability? Here’s a detailed list of products and services that have cash value to measure your income.

Assets Owned

Your assets divide in three sections that can bring you money:

A Personal Finances Tip: The cash flow obtained from stocks, bonds, and similar, considered in the balance sheets, must be the net income – after taxes.

Personal Liabilities

The liabilities side is more manageable than the assets. Here you need to consider all types of debts. These include:

• House rent.
• Mortgage. 
• Utility bills.
• Groceries.
• Credit cards.
• Insurance.
• Student loans.
• Gas.
• Electricity.
• Water.
• Entertainment.
• Vehicles.
• Taxes and interest rate.

You should include every liability – fixed or variable – that decreases your total income and prevents growth.

Liability Tip: Prepare to be surprised after managing your finances and realize that you’re not spending your money correctly. For example, you could think that a $10 Netflix bill isn’t a lot. But after a year, that turns into $120 – if you don’t upgrade to a better account.

Net Worth: The Real Deal

The hardest part of the Personal Balance Sheet is being honest with your cash flow and liabilities to calculate your net worth.

We love to maintain a lifestyle but don’t like seeing how much it costs. That’s precisely what net worth is all about.

To determine net worth, you must do a simple calculation: Assets - Liabilities. That’s it. The result will be how much money you have after paying your debt.

This formula will show whether you have a negative net worth. If you do, the goal is to turn it into a positive and increase it over time.

Why is Net Worth Important?

Net worth is a representation of financial freedom. As you increase it, you have more chances to invest money and have other streams of income. Ultimately, these sources create the cash flow you need to live.

The beauty about your net worth is that you can think of it as an emergency fund to help you when you have difficulty finding a new job. However, it’s far more complete than that.

Your net worth can help you and be passed on to your children to help them thrive. When you have a steady cash flow, you can use it for whatever you desire, bringing more value to your assets.

If you have a negative number after determining your net worth, don’t panic. Things like this happen all the time. It doesn’t mean you’ll go down a debt spiral or stop paying lenders the loan you requested.

It only means that you have to increase your net worth.

Here are three ways you can do to make more money:

Pay Off All Your Debt

This may seem obvious, but if you don’t control your debt, it will control you.

Suppose you can pay off your debts with the bank, lenders, etc. This will decrease your liabilities. This makes a great difference for creditors when you want another loan.

Why? Because they consider the debt-to-income ratio as an indicator of payability. If you have 0 debt, the terms of your new loans will be better.

Start a Side Hustle

The best solution so far is increasing your income. This should be a crucial part of your strategy when you set goals.

It’s free, has scalability, and you can make a ton of money out of it.

If you have the knowledge or want to learn a high-paying job, you can make a living out of it.

However, just like everything, it’s not easy. Starting a business from scratch takes time and effort. But if you spend enough time and focus on what you want to want, you can succeed.

Use Insurance To Avoid Liabilities

We have been in accidents. But what happens if we are the ones that cause them?

You’d have to pay for damages and injuries and other harm. That’s why insurance against liabilities exists.

You can pay for this protection to ensure that you won’t pay anything if you have an accident involving other people.

For example, The insurance may cost you $100, but if you are the one who causes an accident, you’d have to pay over $40,000. The assurance helps you reduce your liabilities to $0.

Use Credit Cards

Contrary to popular belief, using your credit card is a good idea. Not only do you increase your credit score, but you also reduce your liability to almost 0.

Let’s put you in this situation: 

You have $1,000 on your debit card, and someone steals it. They can withdraw the money, and your liability will be the entire amount.

However, if you have a credit card with a $1,000 credit limit and someone else uses it without your permission, you are 99% free of liability. You can call the bank to explain the situation, and you’ll only have to pay a small fee.

That is why personalities with wealth don’t use debit cards.

Of course, this doesn’t mean that you won’t pay the money you spend. The idea is that you pay it off in full after using it, so you don’t have to pay interest.

Use Debt Wisely

This method goes along with the previous one. But, of course, it’s extended to all types of debt.

Credit is made to help you pay something in advance while compromising your money in the future. At first glance, it would seem like a bad deal. But, if you find a way to give value to your debt, you can make a lot of money.

Let’s give you an example.

You go to a car dealer to get a $20,000 car. You close a deal with the lender for a 3-year loan and a 4.5% interest rate. You also give a $7,000 down payment to reduce monthly payments to $386.

After you get the car, you start a side hustle where you rent your car for $30 a day. You need at least 13 days to cover your monthly payment. Every penny that goes into your pocket after that is profit.

As you can see, it’s a good business opportunity because you give value to the debt. You move the money from their pocket to yours and then pay back liabilities without spending your hard-earned money.

Every person needs a personal balance sheet. You can use it to:

• Create a company.
• Start investing to increase your net worth.
• Create a budget to control your spending.
• Start tracking each of your spending.
• Set key financial goals.
• Get better rates on mortgages, loans, or other types of lending activity.

This – along with other financial tools – helps you to build a solid personal finance strategy.

Creating a personal balance sheet, it’s easier than you think. It’s only a matter of 4 steps, and you can start making personal financial statements to help you overcome economic situations.

• Open a spreadsheet program – like Microsoft Excel – and create a simple cell format that includes assets, liabilities, and the net worth formula.
• Identify assets and debts. Type them down in the document by category.
• Calculate the total assets and liabilities.
• Determine net worth.

With this information, you can identify liabilities and create a plan to reduce or delete them. It’s the beginning of financial planning. You can also use the document as a Personal Income Statement to show the debts you’ve paid and other assets you have as equity.

If you’re trying to create a balance sheet but don’t want to do it from scratch, you can use a personal balance sheet template. 

You can get them on the internet with just a search. However, we have gathered the best and most simple templates to track your assets and liabilities.

Template #1

Download Link: Balance Sheet.

Template #2

Download Link: Income and Balance Sheet

Template #3

Download Link: Personal Financial Sheet

Initially, you could only get Microsoft Excel through the official Microsoft website. You’d have to pay over $250 for a lifetime serial code. This is a lot of money. It doesn't matter whether you are a business owner or a regular person trying to put your financial situation together.

Fortunately, you have other solutions. You can get a third-party serial code from RoyalCDKeys for barely $12. This will ensure you have the entire Microsoft Office 2021 suite.

You can use this original key during or after MS installation. The software will be permanently installed on your computer until a newer version comes out.

The Personal Balance sheet doesn’t have instructions on what to do when you create it.

This means that you may end up wondering what all those numbers mean. We have gathered three essential tips to help you reach the exact point where you’ll know what to do next after understanding your net worth.

Invest, Save or Pay Off Debt?

One of the basic principles of an income statement, like the Personal Balance sheet, is deciding what to do with your money.

Will you invest, save or pay off the debt? Balancers suggest you invest your money in other assets to increase your net worth. This is an excellent financial move if your new investments can cover your debt.

However, if you’re suffocating in debt, you should consider paying it all off.

Don’t Increase Your Lifestyle Cost

If, after making a Personal Balance sheet, you notice that you have more assets than liabilities, it’s a sign that you’re building wealth.

This doesn’t mean that you have to get a better car or request a loan for a new house. You should stick to your current lifestyle and invest the rest in your family, a business, etc.

Consider Previous Balance Statements

To create a good balance statement, you need records. The only way to do that is by using previous sheets to compare how you are progressing.

You can use the records of one year and then compare them to see how your balances are getting better or worse as the months pass.

You can also create a tab on your sheet with an equation that shows the variable percentage of your statements over the years.

Create An Easy-To-Read Document

The most important thing about a personal balance sheet is that it’s simple. You should be able to read the document and understand if you have money or not.

It’s like you show a report to your boss. He needs to understand it quickly to know how to proceed.

It happens the same to you. If you don’t understand what you’re reading, you can act in favor of your finances.

Creating a personal balance sheet to measure your assets minus liabilities is a smart financial move that you should make if you want to know what your actual net worth is after credit card debt and other expenses.

This document will help you with your financial planning strategy and will show you how you are spending your cash inflow.

Once you figure out how much money you truly own, you can improve your individual financial situation by budgeting or asking for personal loans that you can repay.

The personal balance sheet allows you to achieve your financial goals and identifies current liabilities so you can minimize them or turn them into zero.