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.
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.
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.
A personal financial statement should contain the following basic elements:
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:
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:
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.
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.
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.
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.
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.
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.
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.
Personal finances are complex, and managing them is equally complicated. What follows is a step-by-step guide on how to manage your personal finances knowledgeably, safely, and responsibly. Think of this as a starter guide to a healthy and secure financial future.
Personal finance refers to the manner in which you handle your money. It includes all of the decisions and activities related to your own personal finances. Some of the most important elements of personal finance are:
Basic Behaviors of Financially Responsible Adults
A well-rounded approach to personal finance begins with basic practices of responsibility. Here are three good habits we think you should start with:
Sticking to a predetermined budget is another essential feature of financial responsibility. Here are some tips to help you do just that:
Many are also dealing with debts from a variety of sources--mortgage, student loans, credit cards, etc. Here are some tips to help you pay down your debts as efficiently as possible:
Building and Tracking Your Credit
Helpful Financial Tools
There are numerous financial tools that will help you to organize your finances better. We have selected a few of our favorite resources for you to check out below:
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.
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:
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:
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:
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:
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:
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.
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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