Page 547 - Introduction to Business

CHAPTER 15 Personal Financial Planning 521

EXHIBIT 15.1
Personal Balance Sheet

Assets

Cash in bank checking account $
Other bank accounts $
Money market accounts $
House $
Cars $
Furnishings and appliances $
Clothing, jewelry, and art $
Stocks, bonds, and other securities $
Cash value of insurance and annuities $
Retirement savings, such as IRAs or employee
savings plans $
Other $
Total assets $

Liabilities
Taxes owed $
Mortgage loans $
Alimony or child support owed $
Credit card debt $
Car loans $
Education loans $
Any unpaid bills $
Other debt $
Total liabilities $

Personal net worth (total assets total liabilities) $ ___________________

Once you have totaled your assets and liabilities, you are ready to calculate your
net worth by subtracting your total liabilities from your total assets. Your net worth
is a snapshot of your financial standing at a particular point in time. By comparing
your yearly snapshots, you’ll be able to determine your financial progress.
After preparing your personal balance sheet, you should consider the composi-
tion of your individual assets and liabilities. Are your assets made up of clothes, fur-
niture, or other depreciating assets? Wouldn’t you be better off if you acquired assets
that are likely to appreciate, such as stocks or real estate? However, if you invest only
in real estate and real estate values decrease, then your assets lose money instead of
appreciating. The way to reduce the risk that your assets won’t appreciate is to have
several different types of appreciating assets. Diversification is critical. If one type of
asset doesn’t go up in value, perhaps another type of asset will.
After computing your personal net worth, you have a good idea of your present
financial condition. Are you satisfied or dissatisfied with your present condition? In
either case, knowing where you are enables you to make plans for the future. If your
personal net worth is a negative amount, then your top-priority financial goal
should be to pay off some debts. If your net worth is only a small positive number,

Copyright 2010 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.