Your Money: Balance sheets aren’t just for businesses | SummitDaily.com

Your Money: Balance sheets aren’t just for businesses

Michele Knight
Special to the Daily

When you think balance sheet, most people immediately think business. But, did you know you could have a personal balance sheet as well? While most people don’t maintain these regularly, when you are applying for a bank loan, college aid, or a mortgage, it’s one of the first questions they ask.

In simple terms, a personal balance sheet is a list of your assets and liabilities, with the net of the two resulting in your net worth, or equity. It’s a picture of your financial health at any point in time, and it’s made up of numbers that you have readily available, although most people find it difficult to take the first step. Hopefully these directions will help simplify the process and take out the mystery.

On the asset list, your goal is to assign a value for everything you own. Starting with bank accounts, any cash, checking, savings, CD or investment that you have should be valued according to their statements. Aside from the work of gathering the paperwork, you simply list the same value that the bank or brokerage firm is recording them at. While your stocks may have gone up or down, on a balance sheet, they are just listed at the current value, regardless of whether there’s been a gain or loss.

Other assets that should be listed are your retirement plans, the properties you own, and any automobiles or other personal property, such as jewelry, art collections and expensive grown-up toys. Similar to investments, retirement plans should be valued at their statement value, but be careful to read the instructions. Some loan applications purposely exclude this asset because they cannot access the funds if the loan goes bad. Properties should be valued at their fair market value, not what you purchased them for. You can obtain this value at various real estate sites, or by using your property tax valuation. And, for automobiles and personal property, I recommend using the value you could sell it for at any given time, not what you paid for it.

Once you’ve listed your assets, it’s time for your liabilities. This is a list of all the money you owe to people, banks, colleges and others. You should list each liability at the current balance that you owe to the debtor. For credit cards, you need to list your balance, not just the money payment. For mortgages, auto loans, college loans and others, you simply list what you owe at that point in time. While it seems counter-intuitive, all figures should be positive numbers, not negatives, even though you owe money.

Once you’ve listed your figures, you would subtract your total liabilities from your total assets to get your net worth. Hopefully this is a positive number, if not it may mean that you are insolvent, or that you owe more than you own, which is never the ideal position to be in. While it can be scary to see the bottom line, I recommend that everyone prepare a personal balance sheet annually, it’s a great way to track your financial health.

Michele Knight, owner of Knight Accounting & Technology, is a CPA and QuickBooks ProAdvisor based in Dillon. For more info and to contact her, visit http://www.cpamichele.com.


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