If you’re planning a financial overhaul in 2019, one of the first things you need to do is figure out where you stand. And as advised by Kiplinger, one of the easiest ways to do that—and potentially discover possible cracks in your foundation in the process—is to create a balance sheet.
“Make a list of all your assets and liabilities,” writes Jaime Eckels, a Certified Financial Planner. “List each asset or liability as it’s titled, with account numbers, the interest rate charged and current beneficiary designations. Provide as much or as little detail as you want.”
How you choose to do so is up to you. You can use a spread sheet, plain Google doc or good ol’ paper and pencil. There are tons of examples online if you search “personal finance balance sheet.”
What you’re getting at here is your net worth (assets minus liabilities). It’s a useful number to have on hand, but it’s a good practice to have all of your financial information organized one place, and truly know where you stand in relation to debts and assets. Then you can form realistic money goals.
And it has another morbid but practical value. “If you don’t have a balance sheet and something happens to you, the search for your assets will become a buried treasure hunt,” writes Eckels.
Doing this once a year is probably an accurate enough gauge of financial fitness for most people, though Simple Dollar’s Trent Hamm takes it further:
Once a month, I sit down, figure up every number that might be a good indication of my financial state, jot down some explanations, and save that document for later. Whenever I want to look at any aspect of my personal finance growth, I just need to pull out a few of these statements.
Here’s how to do it.
Pull Together Your Paperwork
Assets are what you own: Cash (including money markets and CDs), retirement funds, investments, home value, car value, and personal property like jewelry, tech, furniture, appliances, etc.
Liabilities are what you owe: Rent/mortgage payments, student loan debt, credit card debt, personal loans, etc.
If you have all of your financial information together as advised here, this should be an easy process. Otherwise you’ll need to pull together your bank statements, investment login information, debt repayment plans, etc.
The goal, of course, is for your assets to steadily increase and your liabilities to decrease over time, but it’s ok if your net worth is negative for now. By putting the number down and planning how you can start increasing or decreasing the right column, you put yourself on sound financial footing.
Once you can see all of your assets and liabilities, you can make a plan to tackle the latter while inflating the former. You can set a calendar reminder to check back in once a year, once a month like Hamm or however often you think is necessary.
