Here is a pdf of a very simple personal financial statement:
This is just a balance sheet and an income statement. The balance sheet should show you how much money or debt you have on a given day, like 31 March 2021. The income statement should show you how much money you gained or lost in a given period, like 1 January 2021 to 31 March 2021.
I’ve always been really negligent about financial planning. I have a job that pays a salary and we try not to go too nuts on spending. I’ve come across lots of articles that say you have to be constantly on top of this stuff: planning, saving, investing, refinancing, etc. but I always put it off.
Part of my reluctance to engage is that it seems so complicated and so I thought it would be good to create the most simple financial statement possible. If you do sit down with this pdf or something similar, things will inevitably get pretty complex because your financial situation is probably pretty complex. But in the end you’re just looking for those two simple numbers: (1) how much net wealth you have on 31 March and (2) how much you gained or lost from 1 January to 31 March. And if you keep it mega-high level like this, it should just take a couple hours mostly logging in to your accounts to find the amounts.
Once you get these two numbers, you may well want to dig into the details. For instance, you might get curious if you could afford a three-month sabbatical or how much you would save by bringing lunch in or whatever. Figuring out those two numbers will give you a framework to answer those questions. The answers won’t be perfect but if you look at the greatest corporation in the world with the greatest accountants in the world, the answers will also be imperfect, so don’t worry about it.
In addition to net worth and profit or loss (as set out in this pdf), corporations also figure out their cash flow. This shows them if they can pay their bills and if they should be investing their cash somehow. I haven’t included cash flow in this pdf because, as an individual, you can figure this out pretty easily just by looking at your bank statement.
You might decide that you want to dive into a cash flow statement or any of a million other accountancy things: accrual accounting, valuations, forecasts. The list is endless and, if you find this stuff interesting, you’re lucky and should take advantage of it.
Here is a fabricated example using my pdf based on Vicky, an employee at a business in the US.
Balance sheet. Vicky has a checking account, a savings account, and a pension fund. She has various other assets like a car and possessions but she ignores that stuff. She also has some complicated social security rights but she ignores that too. So she just logs in and checks how much is in her bank accounts and pension on 31 March 2021 – it’s $200,000.
As for liabilities, Vicky has student debt and a credit card. Again, she looks at what is owed on her student debt and credit card on 31 March – it’s $75,000 in total.
So Vicky’s net worth on 31 March is $125,000.
Income statement. Now Vicky wants to know how much money she gained or lost from 1 January to 31 March.
It’s easy for Vicky to figure out how much money came in during this period. She can see from her bank account statements that her only income was three paychecks and one gift and the total was $13,000.
All kinds of weird stuff happened to Vicky’s paycheck before it got to her bank. Among other things, Vicky’s employer deducted amounts for her pension, social security and taxes. Vicky is busy and she doesn’t bother with any of that stuff. She just looks at what was actually deposited in her bank account.
Now Vicky wants to see how much money went out of her account from 1 January to 31 March. She didn’t take any money out of her savings account, so that doesn’t matter. She also doesn’t look at her credit card statements at all. She pays her credit card out of her checking account, so all of her credit card purchases will eventually show up in her checking account. Even if there were big credit card purchases towards the end of the period, Vicky ignores her credit card statements themselves; she just records the actual transfer of money out of her bank account to pay off the credit card.
And so then she just adds up all of the money that went out of her checking account – it’s food and rent and clothes. It’s also payments of student debt and her credit card. She adds it all up and the total is $11,500 for January through March.
So her net income was $1,500 ($13,000 income minus $11,500 in costs).
Vicky might now start thinking strategically about all this stuff: how much she spent on rent, can she increase her student debt payments, investing, etc. But she has the main numbers she wanted: net worth and net income and that’s pretty good.