Personal financial statement
We usually hear about company-related financial statements, but financial statements can also be personal, although they are a simpler version. The financial statement shows the financial health of the company or individual.
Assets and liabilities:
A married couple can create a joint personal financial statement that shows all the assets they own and the debt they owe.
How do I assess personal assets?
When we are faced with reading our financial statements, some cases can be misleading. It is important to understand the figures and some concepts, as they will help us make decisions.
So, we can create a financial statement that details short- and long-term assets and liabilities.
Types of assets
Liquid assets. They are defined as those that can be converted into cash in the short term without losing value. For example: cash; money in savings accounts; stocks, ETFs, fibers, and cryptocurrencies at market price; fixed-term bank deposits such as CETES or promissory notes.
Personal assetsThese are personal assets, yet many of them cannot be sold to pay off a significant financial institution loan. However, personal goods with significant value, such as cars, electronics, jewelry, and antiques, among others, can be included if the value can be verified with an appraisal.
As we know, everything we buy when we leave the store loses value, and sometimes we don’t know what value to assign to it. Therefore, here are some rules that can help you establish the approximate value of your belongings.
You can assign your furniture and appliances, among others, a value equivalent to 5% of their market val On the other hand, you can also apply the concept of depreciation to goods; that is, a fixed percentage that is subtracted, almost always on a monthly basis, from the moment of purchase of a product and is linked to factors such as time of use, etc. Some specialists suggest these annual percentages of depreciation:
For example. I bought my laptop 14 months ago, and it cost me $12,000. The financial statement shows a $4,200 loss due to 30% annual depreciation, or $300 each month. I could sell it right now for $7,800.
real estate assets.
Private, sellable real estate, not your home.
Renting it makes this asset liquid.
Depending on location, condition, legal delays, and payment type, the sale can take four months or more.
Deferred assets. They are part of your long-term financial assets, but they are inaccessible unless you meet a series of requirements, which are usually very strict. In other words:
In addition, they are subject to taxes, which change constantly, so their valuation is not very objective.
Types of Liabilities
Circulating or floating liabilities This group is made up of all debts and obligations whose maturity is in the short term. The main feature of these debts and obligations is that they are constantly moving or rotating.For example: monthly expenses
Fixed or consolidated fixes This group consists of all debts and obligations with a maturity of more than one year (long-term), counting from the date of the financial statement. It refers to what you have to pay or the remaining balance of a mortgage, automotive loan, personal loan, etc.
When there are long-term loans to be paid, let’s say five years, of which a certain part must be covered monthly or annually, that part must be considered a current liability and the rest of the credit a fixed or consolidated liability.
In order to be able to read your financial status, it is good to be clear:
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The amount of your income must be greater than your expenses. Specifically, liquid assets must cover current liabilities.
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The amount to deal with unforeseen events (personal risk; unemployment, accident, civil liability, death) Look at your emergency fund.
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Identify your savings capacity; if you have doubts about how to calculate it, click here.
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Monthly credit payments cannot exceed
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Determine how much money you have to invest; record it in the assets.
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Identify the trends. You may have several debts, but in the long term they may become assets; for example, the house you are paying later can give you monthly rents.
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Identify how much your savings amount to (through actions, ETFs, other investments, a savings account, a retirement fund, real estate, or an automatic savings plan). Are they approaching your financial goals? Don’t you have any of this? Start making the necessary changes.
Conclusion
Since you know what a financial statement is, make yours. List your possessions and potential expenses.
Take your time to assess your finances and choose how to reclaim control.
Don’t bother with complex projections; instead, focus on the actual information, such as your monthly payments and any outstanding balances. This way, you can prioritize those expenses that involve generating more interest.
