How to Create a Balance Sheet, or How to Calculate Your Net Worth

Corey —  August 2, 2010

       A balance sheet is useful because it helps you see what you own and what you owe. It’s also useful in estate planning as it allows you to clearly list everything in one spot and can help you determine how much and what kind of planning you need. If you want to create your own personal balance sheet, here’s what you’ll need to do.

1. Give It a Date

       A balance sheet is a snapshot that’s only accurate on one particular date. When you create your balance sheet, you need to put down the date you made it or last updated it. Simply write “As of {Month Day, Year}” at the top just under your name.

2. List Your Assets

       Now you’ll want to break the balance sheet into two parts. On the left, you’ll list your assets. On the right, you’ll list your liabilities and calculate your net worth. Let’s start with your assets.

       Your assets include anything you own. This doesn’t mean you necessarily own it outright – just that legal ownership belongs to you or your spouse. You’ll want to list your assets in categories by order of liquidity – how quickly you can turn the asset into cash. Additionally, you’ll want to indicate the ownership of each asset (Husband, Wife, Joint, etc.). And finally, be sure to use the fair market value – the price you can actually sell it at. What you paid doesn’t matter. All that matters now is the price you can get if you try to sell the asset.

       The first category will be cash and cash equivalents (things that are almost like cash). This group includes actual cash, checking accounts, savings accounts, money market accounts, and similar assets. Next up are your invested assets. Stocks, bonds, mutual funds, retirement accounts, businesses you own, and any other investments you’ve made fall into this category. Finally, you can list your personal use assets – things like your automobile, furniture, clothes, and house. Some people don’t include personal use assets or they use a lower value. It’s up to you, but I say if you can and would sell it then list it on your balance sheet.

       Add up the total for each category and then add up your total assets.

3. List Your Liabilities

       In the right column, start listing your liabilities – anything you owe. Write down your liabilities in the order that they’re due. Short-term debts will go first (like credit cards or auto loans) and long-term debts will go last (like student loans or mortgages). Include any personal debts as well if you’ve borrowed money from family or friends. List the total amount owed along with who owes it (Husband, Wife, Joint, etc.). I think it’s helpful to also list your interest rate in the description of each debt.

       Add up your short-term debts then your long-term debts. Finally, add up your total debts and list it at the bottom.

4. Calculate Your Net Worth

       This is the easy part. Your net worth is simply your total assets minus your total liabilities. It’s what’s left over if you were to sell everything and pay off all your debts. Since you’ve already listed your assets and liabilities, all that’s left is to subtract.

       If your net worth is negative, you owe more than what you own. If it’s positive, you own more than you owe. It’s as simple as that.

5. Update It Regularly

       Now all you need to do is update your balance sheet regularly. Once a year is fine, but you can do this more often if you like. Remember to change the “As of” date each time you update your balance sheet.

       If all this sounds like too much work for you (it’s really not that hard), programs like Quicken and websites like Mint will help you create your balance sheet and keep it up to date automatically.

Corey

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Corey is currently pursuing a Master of Arts degree in religion. While he enjoys learning and writing about Christianity, another one of his new passions is writing about personal finances in order to help others make wise decisions with their money.

One response to How to Create a Balance Sheet, or How to Calculate Your Net Worth

  1. It’s said the things that are easy to do are the things easy not to do. This technique is easy and more over simple. It only would make sense if you don’t just read it, rather take a paper and pen with you and transform your future financial in a matter of minutes!