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Assessing your financial situation can help you build a steadfast financial future by showing what you can, and what you can’t, afford. One tool that can assist in this assessment is a personal financial statement (PFS). Your PFS lists your assets and liabilities to show your net worth. Creating one involves understanding these different components as well as the ways you apply them to budgets and forecasts.
A financial advisor can design a roadmap for your financial future that reflects your budget and long-term goals.
What Is a Personal Financial Statement?
A personal financial statement summarizes your financial position at a specific point in time. It generally lists assets, such as cash, investments and real estate, along with liabilities, such as mortgages, auto loans and credit card balances. Subtracting liabilities from assets gives you your net worth. Some personal financial statements also include income, expenses and other financial obligations, depending on why the statement is being prepared.
Having a PFS can be useful if you want to make a financial plan. These statements are usually goal-oriented and can help individuals and families in reaching their financial objectives. In particular, personal financial statements may benefit y young professionals who are just starting their financial journeys. If you’re new to financial planning, a PFS will help you understand your current position as well as your options for moving forward.
Another situation where a PFS is often used is when someone is taking out a personal loan. Lenders may request information about your assets, liabilities and income when evaluating a loan application. Your debt-to-income ratio is calculated by comparing monthly debt payments with gross monthly income and can be one factor lenders consider when determining your ability to repay a loan.
How to Use a Personal Financial Statement
A personal financial statement provides more than a static snapshot. It is a working tool that helps inform financial decisions, track progress, and support long-term planning. Individuals use personal financial statements to understand their current financial position and assess whether their financial habits support their goals. This is especially useful when planning for milestones such as retirement, buying a home, funding education or launching a business.
Here are different ways you can employ a personal financial statement as part of your financial strategy.
Net Worth Tracking
One common use of a personal financial statement is monitoring net worth over time. By updating your assets and liabilities regularly, such as monthly or annually, you can observe financial trends, detect setbacks and measure overall growth.
An increase in net worth can come from higher asset values, additional savings or lower debt. A decline can occur when asset values fall, liabilities increase or assets are spent. Reviewing this data allows for more informed financial decisions.
Debt and Risk Assessment
The liabilities section of a personal financial statement highlights outstanding debts and financial obligations. A high level of consumer debt relative to assets or income may indicate a need for changes in spending, refinancing or revised financial planning. Lenders can use your debt-to-income ratio when evaluating your ability to repay a loan. The ratio compares your monthly debt payments with your gross monthly income rather than your assets with your liabilities.
Cash Flow Planning
If you track income and expenses alongside your PFS, you can compare cash coming in with spending, debt payments, savings accounts, and investments. This helps you understand your monthly cash flow and identify how much money is available to save, invest or pay down debt. Reviewing spending patterns may also reveal areas where you can reduce costs or reallocate funds.
Goal Setting and Decision Support
A personal financial statement is useful for setting financial goals. Whether the goal is to build an emergency fund, retire early, or fund college tuition, a PFS helps determine if the necessary resources are in place. It can also highlight any gaps that may require additional savings or planning adjustments.
Financial Advisor Collaboration
Sharing a detailed PFS with a financial advisor gives them the context needed to offer personalized advice on topics such as investing, estate planning, insurance and taxes. Advisors may also use the data to run scenario analyses, such as the impact of retiring early or purchasing real estate. They can then evaluate how these decisions could affect your finances overall.
What to Include in a Personal Financial Statement
The information included can depend on whether you are preparing the statement for your own planning or completing a form required by a lender. For a basic net worth statement, the main categories are:
- Assets: Cash, checking and savings accounts, investments, retirement accounts, real estate, vehicles and other assets with financial value.
- Liabilities: Mortgages, auto loans, student loans, credit card balances, personal loans and other amounts you owe.
- Net worth: Subtract your total liabilities from your total assets. If you have $500,000 in assets and $200,000 in liabilities, your net worth is $300,000.
A lender or other organization can require additional information. For example, a personal financial statement used for a business loan can request income and other financial obligations in addition to assets and debts.
What to Exclude From Your Personal Financial Statement
Whether business interests belong on a personal financial statement depends on the situation. An ownership interest in a business, for example, can have personal financial value and may need to be reported as an asset. If a lender provides its own PFS form, follow its instructions for reporting business interests and related debts.
For personal net worth tracking, you may choose to leave out household items with little resale value. A financial statement prepared for a lender or another organization should follow that organization’s instructions about personal property. Rented items are also generally not part of a PFS, as they are not part of your net worth. However, if you own a space and rent it out to someone else, the rent you collect counts towards any income reported alongside the statement.
How to Calculate Net Worth on a Personal Financial Statement
Start by assigning a current value to each asset rather than relying on what you originally paid. Bank accounts can generally be listed at their current balances, while investment and retirement accounts can use recent account values. For real estate and vehicles, use a reasonable estimate of current market value.
Next, list the outstanding balance of each liability. This can include mortgages, auto loans, student loans, credit card balances, and personal loans. Add the liabilities together and subtract the total from your assets.
For example:
| Personal Financial Statement | Amount |
|---|---|
| Home | $400,000 |
| Retirement and investment accounts | $150,000 |
| Cash | $25,000 |
| Vehicle | $25,000 |
| Total assets | $600,000 |
| Mortgage | $225,000 |
| Auto loan | $10,000 |
| Student loans | $20,000 |
| Credit cards | $5,000 |
| Total liabilities | $260,000 |
| Net worth | $340,000 |
In this example, $600,000 in assets minus $260,000 in liabilities leaves a net worth of $340,000. Updating the same calculation over time can show how changes in savings, investments and debt affect your net worth.
Example of a Personal Financial Statement
Now that you understand what a personal financial statement is and why it’s important, let’s look at an example.
Take, for example, a young professional who wants to prep for retirement. She has started saving with her company’s 401(k) match, purchased her first home and has a car. However, she wants to be sure that she is set up well for retirement, so her financial advisor has asked her to prepare a PFS to understand where she stands currently.
Her home is worth $200,000, and the car she drives is worth $30,000. After several years of hard work, she has $60,000 in investments and 401(k) funds, and she keeps about $5,000 in an emergency fund. Her assets total $295,000.
For liabilities, she owes $150,000 on her home and $10,000 on her car. Additionally, she has about $3,000 in credit card debt. Her liabilities total $163,000.
Her assets are worth $295,000 but she owes a total of $163,000. Therefore, when we subtract her liabilities from her assets, we determine her net worth is $132,000.
Bottom Line
A personal financial statement supports informed decision-making and long-term financial discipline. When updated consistently, it can help you stay aligned with your financial goals and reduce the likelihood of unexpected setbacks. Common uses for a PFS include setting and tracking towards financial goals as well as providing more detailed information to a financial institution, such as a lender, or to a financial advisor. It helps both the individual and the financial institution understand the person’s financial responsibility and what their options are moving forward.
Tips for Building a Personal Financial Statement
- Consider talking to a financial advisor about creating your own personal financial statement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Part of getting your personal finances in order is to be aware of common misconceptions about the subject. Knowing the ones that appear most frequently will help you avoid such mistakes. If one of your personal financial goals is stability, be sure to follow the 10 most important steps to that goal.
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