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Creating Your Personal Balance Sheet For The New Year



Whether or not you view last year as a financial success, the beginning of the year is a great opportunity to reflect and start with a clean slate for the year ahead. The best way to start the new year off right is to know where you stand NOW financially. You accomplish this by creating a personal balance sheet, or also known as a personal net worth statement. The reason why this relatively quick exercise is important is because in order to make goals for the upcoming year, you have to know where you currently stand.


In the video, I give you a really quick walk-thru on how to put together your own personal balance sheet. ⚠️ People tend to do this several different ways but the general concept is the same. As long as you are sure to include all your assets and debts you will be in good shape so don't stress too much about which category something falls under. 


Calculating Your Assets

I personally like to divide my 'Assets' category into three subcategories:

  • Current Assets
  • Retirement Assets
  • Other Assets


Current Assets

I consider current assets any money I can get my hands on within 30 days (with or without a penalty). Money that falls into this category is your checking and savings accounts. But also can include any other investments you might own like individual stocks, mutual funds, CDs (Certificates of Deposit), non-qualified annuities, and savings bonds. Also, this is where you would put that money that you are hiding under your mattress...(just kidding- hopefully that is $0).


Retirement Assets

Money in this subcategory should be everything earmarked for your retirement. Examples include your 401(k), 403(b), SIMPLE IRA, 457 plans, Traditional IRAs, and Roth IRAs. I even like to list out the lump sum value of your pension if you have one (doesn't mean you have to take the lump sum option).


Other Assets

Think of this as the catch all of all the assets that didn't necessarily fit into the two categories above- the value of your home and automobiles. If you don't know the current value of your home, check out your local county appraiser's office online.

👉🏽 Here's a link to the Shawnee County Appraiser's website

👉🏽 For figuring out the value of your vehicles, I recommend using Kelley Blue Book or NADA Guides.


One asset that is commonly forgotten is the cash value of life insurance policies (if that's applicable to your situation). You may also choose to include "vanity assets". These are items like collectibles, jewelry, and antiques. I personally exclude vanity assets because chances are you won’t get the value that you think they’re actually worth if you had to sell them or there may not be a buyer. Now add these three subcategories up to get your 'Total Assets'.


Calculating Your Liabilities (Debts)

I personally like to separate these out as short term and long term debts. The most common type of short term debt is credit card debt. Long term debt includes the mortgage on your house, vehicle loans, and student loans. Once you’re done listing all your debts, add up the totals of the short and long-term subcategories to get your total liabilities.


Calculating Your Net Worth

Once you have all your assets and liabilities calculated, it's time to figure out what your net worth is.


Assets (-) Liabilities: Your Net Worth


  • If you owe more than you own, your assets will be less than your liabilities resulting in a negative net worth.
  • If you own more than you owe, your assets will be greater than your liabilities resulting in a positive net worth.


Setting Financial Goals For The New Year

The most important thing about your net worth is that it’s increasing year over year, and moving closer towards your personal financial goals – NOT for comparing against what everyone else has.

 

Now that you know where your net worth stands...what are you going to do to improve it in the year ahead? 


Improving your net worth isn’t rocket science. You increase your assets by saving more i.e. increasing contributions to your 401(k) 1% annually and cutting your cable bill. You decrease your liabilities by paying off your debts faster (consider skipping eating out for a week or month and use that additional money saved to pay down your credit card debt.)


So, today’s challenge is to calculate your net worth so you can begin making money goals for the new year and live A Financially Fit Life that Offers Real Abundance!

 

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Desmond Henry, financial advisor in Topeka, KS

Desmond Henry is a fee-only CERTIFIED FINANCIAL PLANNER™ professional and founder of Afflora Financial Life Planning in Topeka, Kansas. He helps the retiring/retired plan their finances and invest their money. CLICK HERE to learn more.