How to prepare a personal balance
1. Assets Detail
We must first make a list of all our assets and the estimated value of each. In some cases it may be difficult to determine the real value of some assets, so that in these cases we estimate an approximate value, trying to be as successful as possible.
For a better analysis, assets can be classified in current assets (those that can be easily converted into cash), and non-current assets (those that are not so easily be converted into cash):
Among the current assets may include:
* Cash: the money we have saved at home.
* Bank accounts: the money we have deposited in a bank account.
* Accounts Receivable: money owed to us for a loan we’ve done.
Among the non-current assets may include:
* Valuables: jewelry, paintings.
* Furniture and equipment, furniture, electrical appliances, audio, video and sound.
* Vehicles: cars, motorcycles.
* Investment: business, securities, fixed deposits.
* Real estate: houses, apartments, commercial, land.
2. Detail liabilities
Having detailed our assets, we will detail our liabilities and debts, and the value of each.
Among the liabilities, we can mention:
* Credit cards: the balance to pay for our credit cards.
* Personal loans: the balance that is left to pay for personal loans we have acquired.
* Auto loans, the balance that is left to pay for auto loans that we purchased.
* Mortgage: the balance that is left to pay the mortgage we have acquired.
3. Calculate heritage
To understand the value of our heritage, we simply subtract the value of our total liabilities to total value of our assets.
4. Develop personal balance
Once we have the necessary information about our assets, liabilities and equity, we proceed to develop our personal balance (preferably in an Excel spreadsheet).
In the left column point out our assets, and in the right column our liabilities and equity. As a point we must note that the total assets must always equal the sum of total liabilities and equity.
4. Compare personal balances
Every so often, we develop a new personal balance either monthly, quarterly, every six months or every year (at least do it once a year), and compared with the previous balance, and thus to assess how it has changed our financial situation.
For example, if we compare our heritage has increased or decreased, if we managed to reduce our debt or, in any case, they have increased, if they increase our assets, whether we are meeting our financial goals, etc.
5. Making decisions
Finally, based on the analysis made in our personal balance, we must make decisions that help us to improve our financial position, for example, if our heritage is negative, we may decide to save more or pay off our personal debt.
If our debt is high, we could decide to cut our credit cards, to pay off our consumer debt, to cancel our debts as soon as possible, to avoid getting new “bad debts”, etc.
If our assets are generating returns us, we may take the decision to use the money we have saved (which we do not generate almost no interest), and invest in the acquisition of any assets that we generate a good return.
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