7 Steps To Create Your Personal Life Balance Sheet — A Take on Personal Finance

balance sheet

Taking your finances seriously is essential for achieving financial success. By taking a proactive approach to your finances and being mindful of the risks associated with investing and saving, you can ensure your financial success.

Let’s take a look at how you can track every element of your personal finances that is either growing or diminishing your total Net asset value by creating a “Personal Balance Sheet”.

What is a Balance Sheet?

A balance sheet is a financial statement that shows the assets, liabilities, and equity of a business or person at a particular point in time. It is important because it helps you better understand the financial position of a business or person, which can help you make wise financial decisions. In simple terms, a balance sheet is like a snapshot of a business or person’s financial situation at a certain point in time.

How to build your personal life Balance Sheet?

Here are a few steps to get started with your own balance sheet. I prefer to manage mine in an excel spreadsheet, but you are free to choose any tools of your choice (e.g. notepad, google spreadsheet, Notion, etc.)

  1. Analyze the current financial situation → Take time to understand your current financial situation and how it affects your balance sheet. Consider your assets, liabilities, and equity.

Assets — This includes cash and anything that can generate cash for you. e.g. Bank Deposits, Investments with cash flow, Apartments on rent.

Liabilities — This is basically anything that takes away cash from you or basically adds to expenses e.g. subscriptions, rent, mortgage, insurance, car loans, etc.

Equity — This can be considered anything other items that you own and has a tangible value e.g. your House.

2. Set financial goals → Make sure to set financial goals and objectives. This will help you plan and manage your balance sheet more effectively.

3. Track your expenses → Track your expenses on a monthly basis. Make sure to include all expenses, such as rent, utilities, and groceries.

4. Monitor cash flow → Make sure to monitor your cash flow. This will help you make sure you’re not spending more than you’re bringing in.

5. Create a budget → Create a budget and stick to it. This will help you manage your finances more effectively and will help you stay on track with your financial goals. A study says that people who write down their goals have a higher probability of reaching them compared to people who don’t.

Read more on budgeting and saving here -> Financial Freedom: Top 5 Ways to Save More and Achieve Money Mastery | THE PASSIVE MINDSET

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