Updated: Feb 27, 2022
A personal financial statement is useful as it can be used to analyze your current financial status, enabling you to track net worth and make better decisions on how to accomplish your financial goals. It shows an individual’s Net Worth i.e. their assets minus their liabilities. If their liabilities are greater than their assets, the financial statement indicates a negative net worth. If the individual has more assets than liabilities, they end up with a positive net worth.
Assets are anything of value that you own. These include :
Account balances: savings, certificates, money market accounts
Investment balances: stocks, ETFs, mutual funds, bonds, annuities, cash-surrender values of life insurance, commodities
Valuable personal property: vehicles, gold, or collectibles
Liabilities are any debts or payments you owe to someone else. These include:
Unpaid medical bills or unpaid taxes
Mortgages or vehicle loans
If you have a positive net worth in a given period, you can apply that money to acquiring assets or paying off liabilities. If you currently have a negative net worth or you want to increase positive net worth, the only way to do it is to assess your spending habits and adjust them as necessary.
An asset is something that you own.
Liabilities are something that you owe.
Net worth = Assets - Liabilities
Understanding and keeping a track of net worth is a step forward towards financial wellness and money mindfulness. How frequently do you track your net worth?