Creating a Personal Financial Statement | Mark J Kohler | CPA | Attorney

Hi, Mark Kohler here. Let's talk about building a personal financial statement. Now, this is a really important procedure tool. It's going to help you in a lot of different ways. And I'm not talking about a business financial statement with a profit and loss and balance sheet and all that. That's a another video for another day, bringing in QuickBooks into the mix and all the bookkeeping that comes with that. But there's going to be a lot of times where you need to build a personal financial statement, maybe for a bank loan. Your kids are applying for fafsa, you're going into a new business venture, a bank is asking one for a credit line, who knows? But having a good financial statement at your fingertips can help you succeed in business and it's going to help you look a lot more professional. So let's dive into it Now. A good place to start is what a typical financial statement looks like. Then we can put it in perspective. So if you have a business, you're going to have what's called a profit and loss and you're also going to have a balance sheet. And this is really typical of a small business with a good set of books and it all ties out. And you accountants know what I'm talking about. This is a typical set of financial statements. But when you're talking about a personal financial statement, let me tell you what the bank wants. They want a balance sheet. This is what they're focused on. They're going to find what your income is when you declare your income, maybe even show your tax return. Where do you have a W2? Do you own some small business income, K1, whatever? That's going to come in a separate form. But what they're looking for in a personal financial statement is a balance sheet. Now another word for balance sheet is your net worth. Now you're going to build this financial statement in Excel. Except for those that are interested, you can email me below and I'll give you a free template, just something in Excel that you can use to set up your personal financial statement. So just email markj kohler.com it's down there below and say please send me your free template for a balance sheet or personal financial statement. Just put it in the subject line, we'll hook you up. But you're going to build this in Excel and you're going to want it in Excel so you can adjust the numbers and it'll do the math for you. So this net worth or personal financial statement or balance sheet, all these terms are all synonymous. With kind of the same thing and really what it's going to look like and it's so easy, your people are going to love this is basically you're going to put your assets minus your liabilities and then that's going to equal your net worth. Now that's kind of down and dirty, simple. And then there's some other ways to look at this from an accounting standpoint. Okay, now that you have the basic structure, the accountants or the bankers are going to want to zoom in on a few things. So for assets you're going to provide a little more detail. You're going to provide current assets which might be bank accounts or stock you might own and then kind of long term assets which could be land, buildings, your home and maybe even businesses you own. But when you list all these, you're going to put their fair market value, what not what you paid for them, what are they worth right now? If you were to sell them tomorrow, of course, bank accounts and stock, that's going to be easy. But you have to give kind of a good fair market value analysis or basis for what they're worth right now I don't care what you paid for them. Again, we're going to put market value, dollar amounts and you're going to put them all in here. Don't worry about liabilities yet. You may put your home in here. My home's worth 300 grand, but there's a mortgage on it for 280. That's going to come later. Just put all of your assets here in all the different forms and fashions. And then we're going to come up with a total, total assets fair market value. Next, the same thing applies for your liabilities. You're going to look at current liabilities like credit card debt, auto loans, things like that. And then long term debt, which might be mortgages on the land or home that you own. And a lot of times it's good to time together. So you on the asset side you might put auto number one, auto number two or home number one, home number two. And then down here put liabilities, loan for auto one, loan for auto two, loan for building one or house one or whatever. So that way the banker or someone reviewing this can look at, okay, these liabilities are tied to that. And then you're going to list the current balance on any of these liabilities and that's going to add up and you're going to have your balance of all the liabilities that you have. Now in the end here you're going to Take your assets minus liabilities, and that's going to give you your net worth. You kind of back into it. And this is pretty easy because again, accountants are going to look at this and go, oh, my liabilities and net worth combined equal my assets. Because assets minus liabilities equal net worth. Now, that might take a minute to sink in, but when you're playing in Excel, you're going to get it, because if I have a million dollars in assets minus 800,000 in liabilities, that means my net worth is 200,000. Well, 200,000 plus 800 equals my assets. So you can kind of do some basic math. This is why you went to fifth grade, to learn some math. Now, the goal here is, is that you have a positive net worth. You're in the black. So a million dollars worth of assets, 800,000 in liabilities, and your net worth is 200,000. So you're in the positive. And usually you put a couple lines down there below. So when I email you a template, you're going to see this, and I'll give you some ideas of what those normal assets and liabilities would be. Now, heaven forbid you're negative, meaning you've got $1.2 million in liabilities, meaning you're negative. Now, you're in the red, which we don't want to be in the red, but that would be kind of a little parenthesis here, and you're $200,000 in the red, so you have a negative net worth. Not good. So we want to work towards positive net worth. Now, in summary, this is a great document you should always have on hand, and it probably should go into your estate planning binder where you have your trust and will, maybe where your tax returns are. Copy once, and every time you do one, put a new copy into your fireproof safe with these documents. This is what we do at our law firm. We're trying to keep things simple and affordable for our clients, where they have their assets and liabilities set forth on a financial statement. They've got their wills and trusts, they've got their tax returns. Maybe they're all on a little digital flash drive and they're in a fireproof safe. And you've got your corporate book for your LLC and a corporate book for your corporation guys. When you're organized like this, it brings a major peace of mind, comfort to your life so that things aren't all scattered out there. Trust me, it'll help you be a better business owner and better live your American dream. When these types of things are organized and at your fingertips. So your homework this weekend, Work on a financial statement. It may be very surprising where things stand, hopefully in a good way for you and your family and as you're trying to build that wealth. So get in there, get a financial statement done and send me an email and I'll send you a template that'll help you get there. Thanks. Thanks so much for watching and if you found that helpful, please look in the description below. 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