What is a personal financial statement? Important elements and examples

A comprehensive financial statement provides an overview of one’s current financial situation. It can help bring clarity to personal finance management, planning, and decision-making.

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This article explains the elements of a personal financial statement, how to create one, and why doing so is important.

What is a personal financial statement?

A personal financial statement is a document that outlines a person’s financial situation at a specific moment in time. It typically lists assets, liabilities, income, and expenses in a balance sheet.¹

In basic financing terms, the statement provides insights into a person’s net worth. It also helps identify financial goals and can become a building block for creating a budget. It is a useful tool for financial planning, as well as for securing loans and tracking financial progress over time.

Reasons for having a financial statement

There are many reasons why a person would prepare a personal financial statement, including:

• Financial planning. A personal balance sheet or cash flow statement helps to keep track of income and expenses and can inform financial planning decisions on how to increase net worth.

• Budgeting. Knowing exactly how much money is allotted for expenditures is important for creating and maintaining a realistic budget. PayPal's Spend Smarter Guide offers financial management tips that can help make the budgeting process easier.

• Tracking financial progress. Comparing financial statements at regular intervals offers insights into changes in income, expenses, and net worth, signaling when it might be necessary to make budget adjustments.

• Decision-making. Knowing the details of one's current financial situation is necessary for making informed decisions on investments, savings strategies, debt management, and major purchases.
• Financial health assessment. A balance sheet offers a snapshot of a person’s financial health. It shows clearly which areas are doing well and which could be improved upon. Researching financial planning tips can help to guide the process.
• Other reasons. These include loan applications and legal requirements, such as divorce proceedings.

What are the important elements of personal financial statements?

The statement outlining someone’s net worth typically includes general information about that person, including their name, address, and birthdate, as well as a list of all their assets (things of value that they own, such as a home, jewellery, or financial securities) and liabilities (anything that is owed to others, such as a mortgage, loan, or taxes).²

Each part is essential in creating a financial health snapshot. To make sure the statement is as comprehensive as possible, the following elements should be considered:

Account balances and balance sheets

A personal balance sheet is the part of a personal financial statement that lists all personal assets, including bank accounts, investments, and property. It also shows all liabilities, including loans and credit card debt. Seeing the numbers on a balance sheet helps in the assessment of a person’s net worth.

Income and expenses

Income and expenses can be part of a personal financial statement, although they’re typically entered on a separate sheet, often referred to as a personal income and expense statement. This section shows a person’s income, such as annual or monthly wages and investment returns. It also lists monthly or annual expenses, including utility bills, rent or mortgage payments, and taxes, to name a few.²

The role of transactions in financial statements

An important aspect of effective money management and budgeting is keeping track of and understanding cash flow. Insights can be gleaned from monthly bank statements or transaction statements.

When people keep track of transactions over time as part of a regularly updated financial statement, they can help identify areas where a budget or goal might have to be adjusted to work towards better financial security.

Account numbers

If more than one bank account is involved, each account number on the statement should be listed and tied to specific assets or liabilities for accurate tracking purposes.

Example of a personal statement

A net worth statement depends on a person’s financial situation, lifestyle, stage of life, and various other factors.

Here’s a fictional financial snapshot of Alex, who earns 35,000 GBP annually and has the following assets:

• A car worth 15,000 GBP
• Investments of 100,000 GBP
• Savings of 17,500 GBP

In terms of liabilities, Alex lists the following:

• An outstanding loan of 10,000 GBP
• A credit card balance of 3,500 GBP

In this simplified example of a personal financial statement, Alex’s assets total 132,500 GBP, while the liabilities come to 13,500 GBP, meaning Alex’s net worth is 119,000 GBP at this moment in time. This snapshot doesn’t take income and expenses into account.