A Personal financial statement refers to a caption of your financial state at a particular point in time. A personal financial statement lists your liabilities (what you owe), your assets (what you own), and your overall net worth. Furthermore, they are a roadmap that guides you from wherever you are at the moment, to where you want to be in the future. These statements also give specific points of reference from which you can measure your state of progress. It is a document that contains all the details about an individual’s liabilities and assets. A personal financial statement is often used by lenders to determine a loan applicant’s financial capability and net worth.
The Use of a Personal Financial Statement
Personal financial statements give a detailed account of a person’s finances in a simple form. If you are seeking a business or personal loan, then a personal financial statement is a vital document you must have. This statement enables loan lenders to determine your capabilities by assessing your assets and liabilities quickly. For those that are married, their financial statement might include their spouse’s assets and liabilities.
Financial statements can be used for so many purposes; for instance, they can be used by companies to determine their financial position. A financial statement meant for a specific person is referred to as a personal financial statement. Those that are meant for a company or institution are known as corporate statements. Either way, financial statements reflect an exact financial situation of the subject in question.
When do you need a Personal Financial Statement?
Many situations in day-to-day life will need you to have a personal financial statement. For instance, when you are seeking a personal loan or any other kind of financing, you will have to share information about your financial details. This information includes your assets, liabilities and net worth. It is important to note that when you are listing down your assets, you should provide comprehensive details about those assets.
This will help the lender estimate the value of your assets and the amount of loan you qualify for. Any loan you apply for, be it a personal or business loan, needs you to provide your financial statement. In some situations, you might be asked to provide a personal guarantee for part of your loan. You may also have to pledge some of your assets to cover the loan in case of a default. This is known as a “collateral loan”.
What a Personal Financial Statement Contains
A personal financial statement contains vital information regarding an individual’s financial situation. This statement is mainly broken down into liabilities and assets. Assets refer to the value of securities and funds held in savings or checking account, trading account, retirement account balances and mortgage. Liabilities is information on an individual’s debts, i.e. credit card, personal loan, unpaid taxes, student loans and real estate arrears. If you are married, debts that are jointly owed are also included. This is because married couples might choose to create a joint personal financial statement by combining their liabilities and assets.
When writing your financial statement, you need to start by gathering information regarding your assets and liabilities. When a loan lender asks for your financial statement, they expect it to give accurate information about your assets, liabilities and net worth. It highly recommended that you create a financial statement that captures your most recent information. By doing so, you make an accurate statement that might increase your chances of getting a loan.
Basic Personal Financial Statements
There exist two basic personal financial statements — cash flow and the balance sheet. These are the two most common financial statements that everyone should be prepared to create, or rather, have their financial advisor prepare them at least once a year. Creating a financial statement is a vital first step in financial planning. Experts advise that the most reliable way of controlling your finances is tracking your financial position and progress. It gives you an accurate picture of where you are financially. Knowing your financial situation helps you make correct decisions about your financial matters. Pictured below is a combined view of two basic personal financial statements.
Why use a Personal Financial Statement?
Financial statements can be beneficial in figuring out a person’s annual economic progress. They are valuable in planning out a person’s finances. Financial statements are goal-oriented and can help you achieve your financial targets. They work best for young fresh professionals just joining the workforce. Young people find it hard to control their finances, and personal financial statements come in handy.
Are you having trouble creating a personal financial statement? If so, we have created easy-to-use templates that are ready for download. You can use our free and premium templates for an excellent financial statement!
A good personal financial statement brings you closer to effectively managing your finances. Therefore, take your time and create a reliable financial statement!