A personal financial statement (PFS) is a report and financial document that provides a snapshot of an individual’s financial situation at a specific point in time. A PFS usually includes information on a person’s assets, liabilities, income, and expenses. PFS is one of the key documents for bank loan applications, and commercial real estate lease applications. It is also used to calculate and track a person’s Net Worth.
Click here to find the downloadable Personal Financial Statement Template in excel.
Key Elements of a PFS
A Personal Financial Statement typically includes the following elements:
Personal information includes the individual’s name, contact information, identification number, and employment information.
This section lists the individual’s assets, such as cash, savings accounts, investments, real estate, and personal property. The value of each asset should be included in the is section.
This section lists the individual’s debt, such as loans, credit card balances, and other forms of debt. The outstanding balance, interest rate, and minimum monthly payment for each liability should be included in the liabilities.
Net Worth is calculated by subtracting liabilities from assets. This section gives a clear picture of an individual’s financial position.
This PFS element includes information about the individual’s salary, wage, and any other sources of income.
This section includes information about the individual’s expenses, such as rent, utilities, transportation costs, and other monthly expenses.
It’s crucial to ensure that the information included in a PFS is accurate and up-to-date. A PFS should also be presented in an organized and easy-to-read format using a professional template. And finally, it should be kept private and confidential, only shared with those who have a legitimate need to see it.
Personal assets are items of value that an individual owns. They can be physical assets, such as real estate, vehicles, jewelry, or art, or financial assets, such as cash, savings, investments, or retirement accounts. Some common examples of personal assets include:
Cash and savings
Cash and savings include cash on hand, savings accounts, checking accounts, and money market accounts.
This includes stocks, bonds, mutual funds, and other forms of investments.
Retirement accounts include 401(k)s, IRAs, and other types of retirement accounts.
Real estate includes any property that the individual owns, such as a primary residence, rental properties, or vacation homes.
Vehicles include cars, trucks, motorcycles, boats, and other vehicles that an individual owns.
Personal Properties include jewelry, art, collectibles, furniture, and other private property items.
If an individual owns a business, it will be considered a personal asset.
If an individual owns a life insurance policy, it may be considered a personal asset.
It’s important to note that personal assets are not limited to the abovementioned examples and can vary widely depending on individual circumstances. The value of assets can also fluctuate over time, and it’s essential to keep track of them regularly.
Personal liabilities are debts or obligations that an individual owes to others. They can include loans, credit card balances, mortgages, and other forms of debt. Some common examples of personal liabilities include:
Credit card balances
Credit card balances include any outstanding balances on credit cards.
Mortgages include any outstanding balances on an individual’s primary residence or other real estate property.
Car loans include any outstanding balances on vehicles that an individual owns.
Personal loans include any loans an individual has taken out for personal expenses such as education, medical bills, or other personal expenses.
Student loans include any outstanding balances on student loans.
If an individual is a co-signer or has any personal guarantee on a business loan, business debt will be considered a personal liability.
Income taxes owed
Any unpaid income taxes to the government can be considered a personal liability.
Lease and Rent
Any unpaid lease or rent can also be considered a personal liability.
What is Net Worth?
Net Worth is one of the main elements of a PFS and it is a measure of an individual’s financial position. It is calculated by subtracting an individual’s liabilities (debts and obligations) from their assets (cash, savings, investments, and property). The result is a snapshot of an individual’s net worth at a specific point in time.
The formula to calculate net worth is Net Worth = Total Assets – Total Liabilities.
For example, if an individual has $150,000 in assets (e.g., a home, savings, and investments) and $50,000 in liabilities (such as a mortgage, credit card debt, and car loan), their net worth would be $100,000.
Net Worth can be positive or negative. A positive net worth means that an individual has more assets than liabilities, which is considered a desirable financial position. A negative net worth means that an individual has more liabilities than assets, which is regarded as a less desirable financial position.
Note that Net Worth is not a measure of an individual’s income or cash flow. It’s only a measure of the total value of an individual’s assets versus the total value of their liabilities. It’s also important to note that net worth can change over time due to fluctuations in the value of assets or liabilities. It’s essential to regularly track and update your net worth to monitor your financial progress.
Personal Income and Expenses
Personal income and expenses on a PFS refer to the money an individual earns and spends. Personal income includes all sources of money an individual receives, such as salary, wages, bonuses, investments, and rental income. Personal expenses include all of an individual’s money, such as rent, mortgage, utilities, transportation, food, entertainment, and other living expenses.
To create a personal income and expense statement, you can start by listing your income sources and the amount you receive from each source. Then, list all of your expenses, including both fixed and variable expenses. Fixed expenses are those that stay the same each month, such as rent or mortgage payments, while variable expenses, such as groceries or entertainment, can change each month. Get professional assistance from your accounter (accountant) if necessary.
It’s important to track your income and expenses regularly to get a clear picture of your cash flow. By comparing your income to your expenses, you can identify areas where you can reduce spending and use that money to save or invest. You can also use your personal income and expenses statement to create a budget, which is a plan that guides you to manage your money effectively and achieve your financial goals.
In short, not all expenses are necessary or fixed; some expenses are discretionary or variable and can be reduced or eliminated, such as eating out, buying expensive gadgets, etc.
A personal financial statement, also called PFS, is an important document to calculate Net Worth and track steps to reach a personal financial goal. It is also one of the key documents to provide a person’s personal financial information to be approved for small business loans and other important applications.