A personal balance sheet is a financial statement of your personal assets and liabilities. It is important because it allows for analysing the assets a person has, looking at their liabilities and net worth.
Explanation:
A personal balance sheet can be used to see one’s wealth at a particular period of time. A balance sheet presents a combination of assets, liabilities, and net worth. The personal balance sheet is highly important because it may be used to see if you are gaining or losing money. It can also help to prepare for significant expenses in the future and understand what assets can be used for it.
Assets are what a person owns. Some of the assets are physical, while other can be intangible. One’s assets can include cash, investments, buildings, furniture, and prepaid expenses. Assets can be placed in separate categories, if it is necessary.
Liabilities are what an individual owes. One of the most known example of liabilities is money. However, they can also include debts (such as the ones for electricity). Liabilities can also be placed in separate categories for convenience.
Finally, one’s net worth equals assets minus money. It means that the more a person owns and the fewer liabilities there are, the higher is their net worth.
Creating a personal balance sheet may be a crucial step to understanding how much money and other assets one can use at a particular period of time. This is how one can start working on the balance sheet.
Assets can be written in the left column and liabilities can be placed in the right one. Alternatively, assets and liabilities can be put next to each other. Once all assets and liabilities are counted, subtract liabilities from assets. That is how the net worth can be counted.
