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How to Prepare a Personal Balance
by Admin ·
A personal balance sheet is a document which details the assets, liabilities and assets owned by an individual at a particular time.
Have a personal balance allows a person to know and analyze your financial situation (especially as regards its level of indebtedness and the value of its assets), and based on that analysis, to make decisions or plan your finances.
Also, a personal balance allows a person to compare your current financial situation given financial situations at other times, and thus, for example, knowing if you meet your financial goals.
In addition, the personal assessment is usually a document required by banks or financial institutions when applying for a loan or credit.
To better understand the concept and usefulness of a personal balance sheet, see below how to develop and take advantage of one in seven steps:
1. Assets Detail
We must first make a list of all our assets and the estimated value of each.
In some cases it may be difficult to determine the real value of some assets, so that in these cases we estimate an approximate value, trying to be as successful as possible.
For a better analysis, assets can be classified in current assets (those that can be easily converted into cash) and non-current assets (those that are not so easily be converted into cash):
Among current assets include:
* Cash: the money we have saved at home.
* Bank accounts: the money we have deposited in a bank account.
* Accounts Receivable: The money they owe us for any loan that we made.
Among the non-current assets include:
* Valuables: jewelry, paintings.
* Furniture and equipment, furniture, appliances, audio, video and sound.
* Vehicles: cars, motorcycles.
* Investment: business, securities, fixed-term deposits.
* Real estate: houses, apartments, commercial, land.
2. Passive Spell
After detailed our assets; we went on to detail our liabilities and debts, and the value of each.
Among the liabilities, include:
* Credit cards: the balance to pay for our credit cards.
* Personal loans: the balance we have left to pay for personal loans we have acquired.
* Auto loans: the balance that remains for us to pay for auto loans we have acquired.
* Mortgage: the balance we have left to pay for the mortgage we have acquired.
3. Calculate heritage
To know the value of our heritage, we simply subtract the value of our total liabilities to total value of our assets.
4. Develop personal balance
Once we have the necessary information about our assets, liabilities and equity, we began to develop our personal balance.
As a point we must note that the total assets must always equal the sum of total liabilities and equity.
5. Analyze personal balance
The next step, once developed our personal assessment is to analyze it.
First we must pay attention to our heritage and ensure that it is positive, if not, means that we more than what we have, it maybe because we do not have a good level of savings, not count with enough investment, and/or debts have many personal loans.
Then we must pay attention to our debts and against our assets, ensuring that we have sufficient current assets to cancel the debts that we have to pay in the short term.
We must also differentiate between “good debt” and “bad debt” good debts are those that make us grow (financially speaking) in the long term (for example, debts incurred to buy a home or an investment), while “bad debts” adversely affect our financial situation (e.g. credit cards or personal loans for consumption), we must try to settle and avoid the latter.
And then, we must pay attention to our assets and make sure we have enough non-current assets that enable us to grow (financially speaking) in the long run, but enough that we can use current assets to any eventuality.
6. Compare personal balances
Every so often, we develop a new personal balance, either monthly, every three months, every six months or every year (at least do it once a year), and compared with the previous balance, and thus to assess how it has changed our financial situation.
For example, if we compare our heritage has increased or decreased, if we are able to reduce our debt or, in any case, these have increased, if they have been increasing our assets if we are meeting our financial targets, etc.
7. Making decisions
Finally, based on tests on our personal balance, we must make decisions that help us to improve our financial position, and for example, if our heritage is negative, we might decide to save more or pay off our personal debt.
If our debt is high, we could decide to cut our credit cards, to pay off our consumer debt, to cancel our debts as soon as possible, to avoid getting new “bad debts”, etc.
If our assets are generating returns us, we may take the decision to use the money we have saved (which we do not generate almost no interest), and invest in the acquisition of an asset that generates a good return.