An essential part of any banker’s book is a personal financial statement. A personal financial statement details your financial history and plays a major role in helping those with the money determine if you are a risk worth taking. In this post, I want to go over what a personal financial statement is and some of the basic information it should contain. Plus, I will provide you with a blank personal financial statement in a spreadsheet format so you can get started on putting yours together.
It Is All About Demonstrating Low Risk
First, remember that potential lenders generally care about only one thing. That thing is getting their money back. Before they lend their money, they should do some due diligence to determine the level of risk they will have to take in lending to you and what their chances are of getting paid back. Your task is to demonstrate that you are a good risk and will pay them back. A well designed banker’s book with a personal financial statement will help you accomplish that task. It will demonstrate that you have your financial house in order.
As mentioned in the opening paragraph, a bank personal financial statement has been uploaded here. As a spreadsheet, it has formulas already designed in it to do some of the work and calculations for you. Download the blank personal financial statement and follow along as I describe the major components.
Filling Out The Statement
The personal financial statement form consists of three pages. The first page lists all of your income and all of your expenses. It is here that you describe what you earn and what you spend those earnings on. You can add or remove the income and expense categories to fit your unique situation. Once all of the data is compiled and entered, hopefully this section will demonstrate that you are living within your means. If not, perhaps it is time to explore some of Dave Ramsey’s expertise and develop a budget.
The second section lists your assets and liabilities and creates a personal balance sheet. It lists what you own and what you owe. What are assets? They are items such as cash, stocks, retirement accounts, real estate, automobiles, jewelry, art, etc. Assets are anything of value that you own. In assigning value, enter what you believe they are worth. For example, if your home is worth $200,000, enter that number. Do not worry about what may be owed on the asset, that comes in the liabilities part.
Your liabilities are what you owe someone else. Liabilities include items such as credit card debt, student loans, mortgages, car loans, etc. Enter the amount you owe on your mortgage for your $200,000 home in this section. The spread sheet will automatically tally both of those sections and then present you with your net worth as a personal balance sheet.
If for example, your only asset is the $200,000 home described above, but you owe a mortgage of $150,000, then your net worth is $50,000.
The second and third pages provide details of your assets and liabilities. It is in these sections that you answer several questions. These questions include: What types of assets? Where are the accounts located? What is the address of the real estate assets? Who holds the debt? How much debt is owed on each asset?
Sign And Date It
Once all of this information is entered, you sign and date the personal financial statement. Your signature notes two things. One, it tells the lender how current your statement is. Second, it notes that everything you have represented is true and accurate to the best of your knowledge. It therefore has a sort of legal standing so be true and accurate.
It takes Time And Can Be Eye Opening
Compiling the personal financial statement can take some time. There is often a lot of data to be collected and entered. It may not be something you can do in a day, but may in fact take a couple of weeks to figure everything out. Once completed, be ready. If you have never completed such a document before, it can be pretty eye opening. You may not have really known where all of your income was going and where you were balance sheet wise.
Better to find out now that you need to get your personal financial house in order before you ask for other people’s money. Once things are worked out to your satisfaction, you will be very on top of your financial matters and able to clearly demonstrate that you are a good risk to take.
