The Personal Balance Sheet: MVP of Your Financial Plan

When’s the last time you filled out a personal balance sheet? It’s one of the most useful financial planning tools you can use, and in a short time it can tell you where you are with your financial plan.

I spent a couple of years in banking, working with business and personal tax returns and financial statements. I saw a lot of personal financial statements, and was struck by what a good tool they can be for figuring out your own net worth. Not only does a personal financial statement give the bank a list of your assets and liabilities, but it can also point out to you how strong or weak your financial situation is. It can help with debt management and estate planning.

Even though the ones I worked with were created for the bank’s use, I think filling one out is a great exercise for you to do for your own benefit, and I try to do one for myself each year.

There is a part of the personal financial statement that deals with income and expenses, but so do most budgets. There is so much elsewhere on the web about building a budget that I’m not going to deal with that today. I want you to concentrate on building a personal balance sheet so you can figure out your net worth.

There are advantages for filling out a personal balance sheet exactly and meticulously, and there are advantages for filling it out with estimates. Filling the form out with estimates is quicker, and gives you a rough idea of where you are. It will show you important trends (Do I really have that much of my net worth tied up in cars and books?). However, you may tend to over or understate values pretty wildly.

A balance sheet gives you a snapshot on how much you are worth on a given day, so the first thing you need to determine is what day you are going to use.

If the values you are using are from different periods, particularly where you are using hard numbers, you won’t really know where you stand.The beginning or ending of a month is usually a good choice, since a lot of bank and investment statements correspond to the calendar month.

The important takeaway here is that the personal balance sheet only really applies to the day you choose, and you’ll need to be aware when you look at it later that the numbers have probably changed. Your mortgage and bank balance won’t be quite the same, or you’ve bought a different car, or you’ve paid down your credit cards. That’s why it can be a good idea to update it at least annually.

My Personal Balance Spreadsheet:

Download (Personal-Balance-Sheet.xls, 38KB)

If you want to use my Personal Balance Sheet spreadsheet, please download it.(Free stuff!) Feel free to take a look and use the concepts to make your own spreadsheet if you are reluctant to download and are comfortable with making spreadsheets.

If you do download my sheet you should be aware that I did protect the spreadsheet. It is designed so that changes should only be made in the shaded areas to keep links and formulas intact. This means almost all of your data entry will be on the “Itemize” tab, where you will list your assets and liabilities, and it will automatically total and link to the “Summary” sheet.

On the Summary sheet, I also have included a weighted balance sheet, and you can tweak the weights if you want. The weighted balance sheet gives higher weights to harder assets that have higher liquidity and where values are more objective than more nebulous, non-liquid assets like business interests and personal property.

Weighting the assets should give you a more accurate view of how easily you can leverage your assets to repay your liabilities. If there’s a big difference between your net worth and your weighted net worth, or if your weighted net worth is particularly low, you may need to scrutinize your spending and saving habits.

How to Fill Out the Itemize Section

Blue cells are for listing information, green cells list asset values, and pink cells list liability values. Liabilities should be typed in as positive numbers to feed Net Worth correctly. Feel free to combine items if you don’t have enough room.

  • Bank Balances: This is relatively easy to get an exact number for, especially if you’ve set up the as-of date for the end of a month or for today’s date. The weighted balance sheet gives you 100% credit for all cash.
  • Brokerage Accounts (non-retirement): This section is for all non-retirement investments in publically held stocks, bonds and other investments. You can also include the cash surrender value of any life insurance policy, but make sure you are including the amount you would get if you surrender the policy, not the face value of the policy. If you have a margin account for trading or a life insurance loan, list it in the pink field.  This is nearly as liquid as cash, and the weighted balance sheet credit and liability are each 100%.
  • Retirement Accounts: This section is for all dedicated retirement investments, whether 401Ks, 403Bs, IRAs, annuities, or other vehicle. I’ve weighted this at 50%, because liquidating retirement funds can be costly and difficult. You can put 529 plans, HSAs, and similar accounts here. If you have a loan against your retirement account, put it in the pink field. It will be weighted at 100%, as you will definitely have to pay it back, particularly if you leave a job where you have a 401K.
  • Real Estate: While less liquid than cash or brokerages, real estate market values can be determined relatively objectively, either by using tax value or real estate sites like Zillow. Please note that it is the market value, not the purchase price, which feeds the summary page, so make sure you are using the market value field, even if you are just repeating the purchase price. If you have partial interest in real estate (like owning land or a vacation home with a sibling), only put in your share of the value. Mortgages go in the pink. All values are weighted at 100%
  • Business Interests: If you own or are a partner in a business, determining the value can be difficult. Estimates may be the best you can do. Put stocks that are not publically traded here as well. Because small businesses and private stock aren’t particularly liquid or easy to value, they are only weighted at 25%.  If you are a guarantor on your businesses’ debts, put the amounts that you guarantee in the contingent debt section. It won’t directly feed your summary totals, as you only have to pay your guarantee if the business can’t. But it’s still listed, so you can see your exposure relative to your Net Worth.
  • Accounts Receivable: If someone owes you money, put it here. It can be a loan to a friend, a tax refund you are expecting, or a loan to your business. I’ve weighted this at 20%, but this is an area where you probably know more about how likely it is to be paid back in a timely fashion and can change the weight if you feel the certainty of getting the money back is high.
  • Vehicles: While the market value of your vehicles can be determined at sites like Edmunds, vehicles lose value over time and may not be particularly easy to sell at Blue Book value. While the weight of vehicle loans is 100%, I’ve only weighted the assets at 15%.
  • Personal Property: Personal property is the catchall category for everything else: Furnishings and electronics, collections, jewelry, whatever. If you have assets in an irrevocable trust, you should also put them here. Note that I have assigned it a very low weight of 5%. Most personal property is highly illiquid, and much of its value is highly personal.
  • Credit Card Debt: List all of your cards, including any balances you are carrying on department store cards. It weights at 100%.
  • Student Loans/Other Bank Debt: List anything else you owe to a bank, the government, or other institution. If you owe taxes, or have a court-ordered payment you need to make, it goes here. It weights at 100%.
  • Non-Institutional Debt: This is the catchall category for all other liabilities, particularly loans owed to family members, friends, or your business interests. I’ve weighted it at 50%, but this is another area where you may need to tweak the percentage based on the terms of your debt and how necessary it is to repay.

Summing up the Personal Balance Sheet

Everyone should have a personal financial plan. Have a budget, track your spending, but also track your overall progress with the Personal Balance Sheet. It’s the most valuable tool you can use to make sure you are making progress in meeting your financial goals.

If you prepare a personal balance sheet on a regular basis, you can make easy comparisons between where you were and where you are now. Is your debt going down? Are your retirement savings increasing? Is your debt decreasing Is your net worth (and therefore your overall financial situation) improving, and by how much?

Use the personal balance sheet on a regular basis to monitor your progress and adjust your spending and saving behavior, and you’ll both meet your goals and know you’ve done so. It’s not just a score sheet, but the MVP of your financial tool box!

What do you think? Did you learn anything about your financial position?  Did the weighted balance sheet add value? Let me know in the comments.

Image courtesy of Keerati at FreeDigitalPhotos.net

8 Responses to “The Personal Balance Sheet: MVP of Your Financial Plan”
    • Emily Jividen 12/04/2015
    • Emily Jividen 12/05/2015
  1. Jenn 12/17/2015
  2. Chris 02/08/2017
  3. Platinumtaxation 07/12/2017

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