How and Why to Generate Your Own Personal Finance Statement

Imagine finding your dream car or piano and wanting to buy it immediately. You can’t quite afford it, but you aren’t sure if it’s safe to take on a bit of debt.

Before you do anything, consider creating a personal finance statement. That way, you can determine your net worth and decide if you want to take out a loan or focus on saving money.

Read on to learn more.

 

Why Generate a Personal Finance Statement

Generating a personal finance statement can help you get a better look at your financial situation. You can use the data to determine if you’re on track to meet your financial goals.

Here are a few more specific reasons why you should create a statement of your finances.

Discover Your Net Worth

Knowing your net worth can help you determine if you can afford to take on more debt. Being able to calculate your net worth is important for anyone, not just super rich people.

You can figure out if your net worth is on-par with the average for your age group. If not, you may decide to investigate why your net worth is lower or higher.

Some people have a negative net worth due to loans, and that’s not necessarily a bad thing. Either way, you should check up on your net worth occasionally to stay on top of money.

Determine Your Priorities

After you figure out your net worth, you can use that information to prioritize certain goals. For example, if your net worth is lower than you expected, you may choose to focus on paying off debt.

On the other hand, if your net worth is greater than you thought, you may choose to take out a loan. Then, you can buy a new car or house or work toward any other goal.

Each time you check on your finances, your goals may change. You can always focus on something new to prepare for a better financial future.

Track Changes to Your Finances

Perhaps you have a larger money goal, such as to buy a house. You can generate a personal finance statement every month or so to determine if you’re on track to meet that goal.

It can be hard to view your progress, especially if you use savings and investments. You have to go to different accounts to add up the balance.

While you need to do that to create a finance statement, you can make the calculation once a month or so. Then, you’ll have an idea of if you’re on track or if you need more ways to save money.

Prepare for a Big Purchase

Looking at your balance sheet can help you decide if you’re ready for a big purchase. Maybe you have enough money to purchase what you want, but doing so would drain your savings.

In that case, you may choose to take out a loan to help cover the cost. Or you could decide to wait another month or two before you buy the item so that you can pay for it in cash.

To decide on that, it helps to know your financial priorities. Of course, generating a personal finance statement can help you determine which goals are most important to you.

Set a Budget

A good personal finance statement will cover your income as well as your savings and debt. You can compare the balance sheet to your income statement to help set a realistic budget.

For example, if you make a lot of money but your net worth is low, you may want to spend less for a while. Once you build your net worth, you may choose to increase your spending.

On the other hand, maybe your income is low but you have a lot of money in savings and investments. You might choose to use some of that money so that you can live well but stay within your means.

 

How to Generate a Personal Financial Statement

Being able to generate a personal finance statement can help you in many ways. If the process seems overwhelming, that’s okay, so you can take it slowly.

However, it may get easier after you create one or two statements. You’ll know what steps you need to follow, so you may even look forward to viewing your finances.

Gather Your Personal Documents

First, you’ll need to gather some essential personal documents. The documents you’ll need include:

  • Bank statement
  • Life insurance
  • Stocks, bonds and other investments
  • Mortgage statement
  • Car loan
  • Retirement accounts
  • Credit card statement
  • Student loan account

There are some things where you may not need the document, specifically. For example, you can access your bank account information using your online banking account.

If you’ve paid off your car or mortgage, you may want to get an appraisal on the value of that item. The same is true if you own other valuables, such as jewelry or musical instruments.

Start With Your Assets

Once you gather your financial information, you should list your assets. This includes cash, bank account balances, and personal property, such as a house or car.

Be sure to add up the balance in your chequing, savings, and money market accounts. If you have a life insurance policy, you’ll need to find the cash value of that as well as the balance of your registered retirement savings plan (RRSP).

Your assets also cover investments, such as stocks, as well as guaranteed investment certificates (GICs). You’ll want to add up the value of all of your property and accounts to get the total.

List Your Liabilities

You’ll also need to list all of your liabilities, which are things that decrease your net worth. Examples of liabilities include any type of debt, such as a car loan or a mortgage.

Student loans, personal loans, and other debt also go into this category. Even if you own personal property, if you’re still paying it off, you have to account for that when calculating your net worth.

Just like with your assets, you’ll want to add up all of your debt and liabilities. You can do this now or wait until you go to fill out a personal financial statement.

Outline Your Income

While it’s great to create a balance sheet, you should also include an income statement. You’ll need to determine how much time you want to track when creating an income statement.

If you work for a traditional employer, you can use your paycheque to determine your income. Self-employed Canadians can use their income from the last month or year.

Sharing your income on your personal finance statement can help you determine your financial situation. Then, you can determine if you need to get a better-paying job.

Consider a Template

When you’re ready to put all of the data together, you may want to use a financial statement template. This will have all of the more common categories so that you can write the numbers down easily.

If you use a template or calculator online, it can add up all of the numbers for you. Otherwise, you’ll need to grab a calculator and do the math yourself.

A template can be easy, but you don’t have to use it. For example, if your assets include things like art or jewelry, you may want to develop your own template to use so that it includes all of the categories you need.

Calculate the Difference

Add up the value of all of your assets, and write that number down. Then, do the same thing with all of your liabilities.

Next, you can subtract your liabilities from your assets to get your net worth. You don’t need to do anything with your income unless it comes from multiple sources.

If you have a side hustle or work with multiple clients, add up each income stream to get your total income. Then, you can compare your income to your net worth.

Review Your Overall Situation

Once you generate your personal finance statement, you can use it in a few ways. One of the best things you can do with it is to figure out your overall financial situation.

However, you want to think about the context of your finances and not your net worth alone. For example, recent graduates may have a low net worth if they’re still paying off school loans.

Someone who makes a lot of money may have a high net worth. But if they have a lot of debt, that can also be a problem.

You can also use the statement to determine when you’re comfortable taking out a loan. Then, you can keep from going into too much debt, but you can use debt to meet your money goals.

 

Will You Generate a Personal Finance Statement?

If you want to improve your finances, it helps to generate a personal finance statement. Then, you can figure out what you need to do to reach your goals more easily.

When done well, your financial statement can reveal a lot about you. Be sure to create one every month or so to track your progress toward goals and better money management.

Does your financial statement show that you can afford a bit of debt? Request a loan today.