Personal Balance sheet for Individual: If someone from you wanted to take control of your finances, you must prepare your personal balance sheet, profit loss statement, or cash flow statement. You have read these terms in the account section for any company. But you know you can also prepare this for you. I was in a meeting at my organization & suddenly, this concept strikes to my mind. Then I did this accounting for my use & found some wondering results.
Those results told my account situation about my finances. What my mind said is, you must also do this small accounting for your self as well at least every 3months end. Like limited companies declare their quarterly results, you must also check your quarterly financial health.
If you have not read that book yet, then do not waste your time read that book first.
Any one of you, if checking your financial health, you must prepare your budget first.
Preparing your budget by using this spreadsheet will give you some results but not the entire financial picture.
To clear the entire financial picture, you must step forward to prepare your Personal balance sheet & your income statement.
Below infographic is the Robert Kiyosaki way to check your financial health.
PERSONAL INCOME STATEMENT FOR FINANCIAL HEALTH
The personal income statement is just like the profit loss statement of any company. Like companies, they have listed down their total expenses & total earnings. And in their profit loss statement, they get to know their Net Profit by deducting expenses from their earning. Companies evaluate these results every quarter & every year.
The same way Kiyosaki taught us to prepare our personal income statement. In the expense tracking spreadsheet, you get to know your total monthly earnings along with total expenses.
We can calculate our net earning just by deducting our expenses from our income.
If the net earning is positive & increasing M-O-M, Q-O-Q, or Y-O-Y, it is a good sign. But if it negative it is always an SOS trigger.
In our income statement, the income column considers mainly 3-kinds of earnings to include. These are:
- Ordinary Income (Salary Income)
- Portfolio Income
- Passive Income
Similarly, the expense column majorly liked with our liabilities. But some expenses must be considered for our daily living.
PERSONAL BALANCE SHEET FOR FINANCIAL HEALTH
Just like a personal income statement, a personal Balance Sheet should be prepared. In your personal Balance Sheet, you must consider your assets & liabilities.
Always remember, “Assets are those which put money into your pocket & liabilities are those which take money from your pocket”.
Under Asset Column you must include the following:
- Total Cash (Cash in bank, FD, PPF)
- Investments (Mutual Funds, SIP, Gold, Shares & similar things).
- Other Assets (Like Actual Value of your Home, Car, and similar things)
Robert Kiyosaki does not include your home, car & similar things under assets unless they are not generating income for you.
Under the Liability Column, you include the following:
- Loan Balance or any other loans (Home Loan, Auto Loan, Personal Loan)
- Credit Card Balance
- Other Liabilities
“Your personal income statement results, your net income.”
Net Income = Total Income – Expenses
“Your Personal Balance statement results, Your Networth.”
Net worth = Assets – Liability
EXAMPLE OF PERSONAL BALANCE SHEET & INCOME STATEMENT
Consider, RAM is doing a job & getting a ₹75K salary per month. Till 1st Oct. he has shares of ₹20K, SIP of ₹50K, and cash in the bank are ₹10K.
His total assets are ₹80K (₹20K + ₹50K + ₹10K).
He receives his Oct. month salary of ₹75K and cash flow for Oct. month are as follows:
His total cash flow is ₹66,650/-
His income statement for Oct Month are as follows:
Net Income = Total Income – Expenses
= ₹75,000 – ₹66,650 = ₹8,350/-
RAM has a home loan, car loan, and personal loan. These three are his biggest liabilities. So, in the personal balance sheet, under the liability column, these liabilities will be considered.
He purchases car of ₹5lacs, but the car is a depreciating asset whose value depreciates with time. Suppose in Oct. month, the current Value of the car is ₹3.5 lac only. So, you consider this value under the asset column. I keep it same value for next 3months till 31dec.
Also, there is some value in his home as well. I consider the same value of ₹22.2 lac under his asset column.
Now, his personal balance sheet will look like this:
Net worth = Assets = Liability
In the same way, you can consider his personal balance sheet for the next 3-months by considering the same cash flow statement. For evaluating next 3months Networth, you need to minus EMI’s from liabilities, as EMI’s has been paid off which reduces liability.
It will look like this:
After 3months (@ 31st December), his Net Worth is ₹1,51,960/-
In the same way, you can also check your financial health. At first instance, it looks a little tricky, but it is very simple if you do it yourself.
You must identify your assets, identify your liabilities, and calculate your net worth. If your current Net Worth is negative, it is high time to create one personal balance sheet to check & improve thereafter.
To improve financial health, you must prepare your balance sheet. It will give you the overall picture of your finances & also able you to understand some finances that are a necessity in today’s time.