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A personal financial statement is a form or spreadsheet detailing a person's financial state at a certain point in time.

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What is a Personal Financial Statement? 

A personal financial statement is a form or spreadsheet detailing a person's financial state at a certain point in time. This statement is typically used to demonstrate a party's creditworthiness or financial stability. This can help them get approved for financing or loans, such as an auto loan, credit cards, or mortgage. It is similar to a credit report.

The personal financial statement form will include personal information about the party. This includes their full name, address, and an identification number. A complete list of total assets and total liabilities is included to provide the recipient with a clear look at the party's financial state. Current debts, along with income, is used to determine creditworthiness.

A personal financial statement can also be used to help someone get a clear picture of their own financial state.

What are the Components of a Personal Financial Statement?  

Who Creates Them?

A personal financial statement can be used by anyone who wants to get a clear grasp of their financial status. Often, though, an aspiring entrepreneur draws up a personal financial statement for the purposes of trying to get a loan or win over an investor.

Is There a Difference Between a Personal Financial Statement and Other Financial Statements?

Yes. Once a business is up and running, it becomes enough of an entity to merit its own financial statement. An established business entity will have its own assets and liabilities and will have enough history to create a profit & loss (P&L) statement. However, when a business is just starting out, it has no financial history and therefore nothing to base a statement on. Investors and creditors only have the financial integrity of the entrepreneur to go on. Therefore, until your business has seen enough success to have a financial identity of its own, you will be issuing personal financial statements.

Main Components of a Personal Financial Statement

A personal financial statement should contain the following basic elements:

  1. Personal information – This means your full legal name, address, telephone number, and any other contact information you’d like to share. This personal information is used to identify who the personal financial statement is for. If you’re an entrepreneur trying to get a loan or investment, you may also want to include the name of your business.
  2. A balance sheet, or “statement of financial position” – This lists your assets and liabilities and calculates your “net worth” by subtracting the amount of your liabilities from the amount of your assets. For example, if you have $100,000 in assets and $65,000 worth of liabilities, your net worth would be $35,000. You’ll need to do a bit of research in order to accurately complete this portion of your personal financial statement because valuable property must be appraised. You must also pull your credit report and check the status of all your unpaid debts. Be sure that you check your math several times to ensure the accuracy of your numbers. The purpose of a personal financial statement is that it accurately portrays your financial situation. If you provide a potential investor or creditor with inaccurate numbers, they are unlikely to help you.

Below is an appendix in which you provide details about each of the assets and liabilities listed on your balance sheet. This is also the place to describe any miscellaneous liabilities or personal income.

Overview of Assets

Listing your assets is an important part of your balance sheet. Assets include, but may not be totally limited to:

  • Accessible cash – This includes all of your checking account balances and any cash on hand.
  • The balance of all savings accounts.
  • The total balance of any retirement accounts you have This should include your IRA.
  • Accounts and notes receivable - These are debts or payments that are personally owed to you.
  • The market value of any significant assets - Significant assets may include, but are not limited to, automobiles, real estate, life insurance policies, real property, jewelry, and firearms.
  • Real Estate – Name each piece of real estate and personal property that you own. Specify what type of property it is, the date it was purchased, and its original cost and present market value. You should also include the name and address of each mortgage holder (even if it’s you), each mortgage account number, the balance and status of each mortgage, as well as the amount of money paid against each mortgage every month or year.
  • Life insurance – List beneficiaries, insurance company details, and the face amount and cash surrender value of each policy.

Overview of Liabilities

Your liabilities must also be accurate so that calculating your net worth is accurate. To properly list your liabilities, include the following information:

  • The total sum of all unpaid accounts. Create an itemized list of all unpaid accounts. Be sure to specify the sum due and to double-check your numbers and your total.
  • Money owed to institutions – This includes money you owe to a bank, credit union, or any institution that loaned money to you.
  • Unpaid installment accounts – This part can be a bit confusing. Ordinarily, you list two of these: one for auto payments and one for any other payments made in installments. Mortgage payments should NOT be included here, they should be listed separately.
  • Life insurance loan, if applicable.
  • Total real estate mortgage owed, if applicable.
  • Unpaid taxes - This is specifically referencing back taxes and not estimates or paid for which payments haven’t posted do not apply.
  • Contingent Liabilities – These are kept separate from normal liabilities because they are, in a sense, not your sole responsibility. List any liabilities you have accrued through endorsement or co-creation of, say, a business, as well as any other special debts such as legal claims or responsibilities and income tax provisions on the federal level.
  • Notes Payable to Banks and Others – In this section, list the names and addresses of institutions or individuals to whom you owe money (the “Noteholders”), as well as original debts, current remaining debts, child support, and the amounts and frequencies of payment installments.
  • The total sum of all liabilities. Remember, it is important that this number is accurate because you’ll subtract it from your assets to calculate your net worth.

Miscellaneous Information Needed for the Personal Financial Statement

Your personal financial statement should include the source of your income. This description can be general. Include your salary, net investment income, real estate income, and any other income you receive. If you have miscellaneous income, be sure to provide details about it.

You should sign and date your personal financial statement. Before you sign and date it, provide a statement verifying the information preceding, followed by your signature, your printed legal name, your social security number, and the date of signing.

How Do I Create a Personal Financial Statement?

Do I Need to Hire a Professional? 

Some people hire an accountant to create and review their personal financial statements for them. However, this is an expensive option, especially for entrepreneurs who are just starting out. The smartest thing to do is to either fill out a free personal financial statement template or to download a sample personal financial statement and build your own. Either of these is cheaper and quicker than hiring a professional.

Legal Considerations of a Personal Financial Statement

A personal financial statement form, or PFS, involves fewer legal entanglements than a corporate document. However, because the goal of the document is to create an accurate picture of your financial health, it’s important to take the process just as seriously as you would if you needed to put together any other legal document. Below, you’ll find the three main legal issues a personal financial statement can raise.

The Perils of Dishonesty

Truth-fudging is a disgraceful but popular habit. We’ve all done it at some point, whether it’s exaggerating our gross monthly income on a rental application or having a friend pose as a professional reference on a resume. Little white lies are an easy and often harmless way to make getting by a bit easier. However, a PFS is not the place for them.

Honesty is a big, big deal to people who approve loans and credit lines. After all, these entities want the assurance that they’re going to be paid back. Being trustworthy is more important than appearing perfect. Even if your credit history isn’t the best, it’s important to be honest about your financial condition on your PFS as you list your total liabilities. It may make you look less appealing in the short-term, but it’s a whole lot safer in the long run. Additionally, it’s easy to go too far with dishonesty. That can put you at risk for the next potential legal disaster.

Audits

Auditing happens when the IRS or even a court decides they want you to turn over your financial documents because they believe you’re lying about your financial circumstances or hiding money. Being audited is stressful. You may end up hiring an attorney or an accountant to help you, which is an added expense you’ll face. Financial dishonesty can also cause you to face civil or criminal charges which can result in fines or even jail time. You could even be forced by the court or the IRS to stop your business operations.

Consequences of Typos, Misspellings and misplacements

The point of a PFS’s final clause is to verify the validity of its information. False information is false information, whether you’ve put the wrong name because of a typo or listed your assets where your liabilities should go. To you, it may be an obvious mistake. However, it may not be as obvious to those who are scrutinizing your financial well-being for the purpose of giving you a loan or a line of credit. Take the time to review your PFS for errors before you sign and date it. Accuracy is everything.

How many do I need?

According to the Small Business Administration’s guidelines, personal financial statements must be completed for every proprietor, every general partner, every limited partner who owns 20% or more of the business, every stockholder holding at least 20% of voting stock, and every loan guarantor. Drawing up personal financial statements for each of these parties may seem like a lot of work, but it’s a whole lot easier if you use a template of a personal financial statement. Using a template makes the process faster and ensures all your personal financial statements have the same format.

How Do I Invest?

Basics of Investing

Investing is essentially the act of committing money to a business, project, etc. with the expectation of gaining additional profit in the future.

Where to invest: There are many different ventures to choose from. Common investments include stocks, bonds, mutual funds, ETFs, real estate, or starting a business of your own.

  • Stocks: an investor purchases a share (or shares) of the company. If the stock price rises, so does the value of the investors’ shares and investment.
  • Bonds: an investor loans money to a corporation or government in exchange for repayment, with interest, at a future, predetermined maturation date (e.g. 5-years). With bonds, investors are essentially purchasing corporate or government debt with a fixed interest rate for repayment upon maturation.
  • Mutual funds: many investors (who likely do not know one another) put money into a pool that is then invested in stocks, bonds or other investment vehicles managed by an investment manager.
  • Exchange Traded Funds (ETFs): similar to mutual funds, but ETFs are traded like stock shares on the stock exchange.

What is compounding?

Compounding is when the value of an initial investment increases because the capital gains and interest (earnings) gain interest over time. This growth is exponential and occurs because your investment has both total growth as well as growth from interest through each period. Compounding interest is different from linear interest, which occurs when only the principal earns interest each period.

When do I start investing?

The earlier the better. The sooner you can put money into investments, the sooner you can start earning interest and appreciation and grow your net worth.

Things to consider before getting started:

  • Know yourself and your goals, both short and long-term. Make sure your investment strategy is commensurate with those goals.
  • Identify your risk tolerance: your timeline determines the amount of risk you will have to take on. If you are looking for big returns in the short term, you’ll have to take on increased risk, which increases the chances of losing money. Long term investing (for things like your newborn’s college education) is ideal. Long term investing enables you to minimize risk and maximize your potential to earn money in the long term.
  • Investing and technology: Will you utilize services like Robo-advisors? Robo-advisors use algorithms to manage client portfolios and identify future investments. Removing the human element lowers the cost of investing and can optimize identifying the best investments, advocates argue.

How Do I Treat Business vs Personal Finances? 

Once a business is up and running, it eventually becomes enough of an entity to merit the creation of its own financial statement. An established business entity has its own assets and liabilities. It will have enough history to create a profit & loss (P&L) statement. However, when a business is just starting out, it has no financial history and, therefore, nothing on which to base a financial statement. Investors and creditors only have the financial integrity of the entrepreneur to go on. Until your business is successful enough to have a financial identity of its own, you will create personal financial statements.

Tips for separating personal and business finances:

  • Create separate checking accounts
  • Use separate credit cards: you should have a credit card that you use only for business expenses.
  • If you are audited by the IRS, you can easily provide business records. Siloing your finances may also allow you to take advantage of certain tax deductions.

Identity Theft and Personal Finance

Identity theft refers to the illegal acquisition of someone else’s personal and/or financial information (i.e. social security number, credit card number, bank account numbers, etc.).

According to the Federal Trade Commission (FTC), the most common types of identity theft/fraud are:

  • Government documents/benefits fraud
  • Credit card fraud
  • Phone/utilities fraud
  • Bank fraud

How does it happen?

Scammers can steal your identity in a number of ways, some simple and others highly complex. Scammers can steal your mail or search your garbage and find information on old bills or financial statements. Pickpockets can take your wallet and use your credit card.

Online, scammers send phishing emails that trick you into disclosing personal information. Identity crooks can place devices on credit card readers at gas stations or stores that capture your credit card information when you swipe your card.

How do I protect myself?

Here are some tips to help you avoid becoming victimized by identity theft:

  • Shred all documents with personal information before throwing them in the trash.
  • Lock your mailbox so sensitive documents cannot be stolen.
  • Do not keep your social security card in your wallet.
  • Only enter personal info on official and secure websites.
  • Never email sensitive or personal information
  • Protect your pin code when using ATMs or credit card readers.
  • Check credit scores and credit reports every 4 months and note any changes or suspicious activity.
  • Sign up for credit monitoring services or services through your credit cards that notify you of suspicious activity on your account.
  • Use credit cards instead of debit cards: generally speaking, it is much easier to overturn or receive reimbursement for fraudulent charges on credit cards than it is on debit cards.
  • Review your accounts on a regular basis to make sure there aren’t any unrecognizable charges.
  • Know what is in your wallet, so you can easily identify if something is missing and quickly determine which cards to freeze or cancel in the event of theft.

What if my identity is stolen?

Immediately notify the Federal Trade Commission (FTC) and any banks and government agencies. Further contacts depend on the type of fraud:

  • Mail fraud: contact USPS Inspection service
  • Tax fraud: contact the IRS
  • SSN fraud: contact the Social Security Administration
  • Credit fraud: contact your banks

In Conclusion

There you have it! We hope this guide provided you with the information you need to manage your personal finances safely and responsibly with specific knowledge that will enable you to pursue your own financial goals in the best way possible.

Additional Resources

treasury.tn.gov/smob/Documents/PersonalFinancialstatement.xls 

Best and Worst States for Millennial Personal Finance

May 1, 2018

Methodology

Our team at FormSwift wanted to determine the best and worst states for millennials when it comes to personal finance. We created a state ranking by evenly weighting the following factors into a total score out of 100: identity theft complaints per 100,000 people, percentage of college graduates with student debt, average 401k balance for an individual aged 20-29, median household income, and unemployment rate. We determined the difference between the totals in categories where a higher value is preferable and where a lower value is preferable.

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