Question

How would you construct a balance sheet for your personal finances? What information would you include? What would the balance sheet tell you about the state of your personal finances? Reply

Answer 1

A balance sheet for personal finances includes putting the assets that you own and the liabilities that you owe. The assets are further classified based on the time period that it will last with you usually short term and long term assets. Short term assets usually include cash ,checking account balance , stocks and jewelry which can be converted to cash quickly. On the other hand long term assets are those which you do not intend to sell for a long period such as your house, car, collectible stamps and art among others. Liabilities are broken down in to short term and long term liabilities based on the time that is allowed to you to pay back the debt. Short term liabilities include credit card bills, taxes owed . Long term liabilities include loans that are repaid for longer terms such as mortgage loans, student loans, auto loans. The balance sheet tells your net worth i.e. what you actually own. Net worth is assets minus liabilities of the individual and what is owned without a loan on the assets. It tells of what liabilities are to be immediately paid and if the individual has enough cash to pay off.