Balance sheet
A financial balance sheet for an individual, also known as a personal balance sheet, is a summary of a person’s financial status at a given time. It details a person’s assets and liabilities, thus allowing an overview of his or her financial situation. The balance sheet also aims to provide a true and complete picture of the financial situation at a specific moment. When a person files a consumer proposal or bankruptcy, the licensed insolvency trustee prepares a balance sheet for the creditors.
Here’s how it is divided:
- Assets: A person’s assets include everything they own that has monetary value. This can include cash, bank accounts, investments (such as stocks and bonds), real estate, vehicles, valuable objects (like jewelry or art), retirement accounts, and more.
- Liabilities: Liabilities represent all of a person’s debts and financial obligations. This can include mortgages, car loans, credit card balances, student loans, personal loans, unpaid bills, and other debts.
- Net Worth: Net worth is the difference between total assets and total liabilities. It is a key indicator of a person’s financial health. A positive net worth means you own more than you owe, while a negative net worth may indicate financial problems.
The formula to calculate net worth is as follows:
Net Worth = Total Assets − Total Liabilities
A personal financial balance sheet can be a valuable tool for financial planning. It allows a person to understand where they stand financially, identify areas that may require special attention, and help set goals for the future, such as saving for retirement, buying a house, or paying off debts. It is often recommended to review and update the personal balance sheet regularly, especially when there are significant life changes, like a new job, real estate purchase, or changes in family situation. This helps keep control over personal finances and make informed choices to achieve long-term financial goals