You can create a personal balance sheet to gain perspective on your financial well-being. In its simplest form, a personal balance sheet details your net worth–basically the amount of cash and property you have, minus your debts and other liabilities. With a little tweaking, your balance sheet can serve as a financial planning tool. Use it to monitor your investments, flag dangerous debt levels and prepare for major expenditures (a home purchase or kids’ college fund) and retirement. Need help getting started? Consider 10 basic ways to create a personal balance sheet that meets your needs.
Ask your financial adviser or accountant for a template and for help getting started. Your adviser may provide a balance sheet as a part of his services. Even so, you’ll want to understand how the balance sheet was created, so you can personally update it if/when your financial status changes.
Read and Research
Turn to a book. Look for works by well-known authors like Kim Snider (“How to Be the Family CFO”) and Jane Bryant Quinn (“Making the Most of Your Money”). These authors regularly update their texts to take into account recent economic conditions and changes in tax and finance regulations. You can order online, or visit your local bookstore for a chance to browse titles and find one that best meets your needs.
You can find a number of online tools to help you create and maintain a personal balance sheet. Some websites, like CNN’s Money Management site, offer online calculators or templated spreadsheets that you can download to add your personal data. The University of Oregon Extension offers a nice template and instructions for beginners. Other useful tools include online portfolio management tools like NetworthIQ that automatically track and update the value of investment accounts.
Do It Yourself
If no online tool exactly matches your needs, create your own spreadsheet in Excel or another product. Use the online examples to guide you, and update the spreadsheet to reflect your personal balance sheet goals.
Look for a software option. Personal finance and tax accounting packages like Quicken and Microsoft Money include automated functions to help you track your net worth. You can also benefit from the other tax and investment management tools included with these packages.
Borrow Good Ideas
Review other people’s work. Verify the validity of your approach to a personal balance sheet by comparing it to others. The blogosphere offers many examples of financial bloggers who post their balance sheets on a regular basis. The “It’s Your Money” blog maintains a list of personal finance bloggers. Consider what these bloggers include and leave out of their balance sheets, and how those choices apply to your financial situation.
Find Reliable Estimates
Use auction, financing and mortgage sites, including eBay, Kelley Blue Book, to determine the value of your personal property. Both Yahoo! and Bank of America offer home valuation tools online. Turn to financial sites, including Yahoo! Finance, for the latest valuations of mutual funds, stocks and bonds. The U.S. Treasury Department maintains a listing of current federal savings bond values.
Set Useful Values
If you find that estimates for your property vary widely, create a baseline estimate instead. Choose a number that you think represents the fair value of the property. Over time, as prices fluctuate, you can use the baseline to estimate whether and how much your property has increased in value.
Graph Your Data
Use a spreadsheet or database program to create a visual representation of your personal balance sheet. Seeing the data presented in simple visual form can help clarify your financial status. For instance, a pie chart may reveal that a high credit card to income ratio, while a bar chart or X-Y graph can help you determine if your net worth is growing fast enough to meet your retirement needs.
Vary Your Data
While a personal balance sheet provides an excellent snapshot of your current net worth, it can also serve as a planning tool. You may know, for instance, that you will have major expenses (college, medical care) in the near future. Try pulling the estimated expenses out of your personal balance sheet. The results can help you determine if you need to increase your savings rate, reduce existing debt or scale down the anticipated expenses where possible.