Proper, ongoing management accounting is crucial for running a successful, long-term business. This is the same for your personal accounting. In this article, we explore personal financial statements.
Written and accurate as at: 12 Mar 2019
Assessing past financial performance, and predicting future performance is an important consideration for those wishing to run a successful, long-term business.
With this in mind, key questions for business owners [and, managers, investors and other interest groups (e.g. creditors)] can be as follows:
1. How well did the business perform for a given period?
2. Where does the business stand financially at a given period?
And, in light of an assessment of the results from the previous two questions,
3. How well placed is the business for the future?
Importantly, when it comes to answering these questions, financial statements can help.
Financial statements are written records that show the financial information (activities and performance) of a business. There are three main types of financial statements.
1. Balance sheet. In general, it provides an overview of a business’ assets, liabilities and owner’s equity at a given point in time (e.g. 30 June 2018).
2. Income statement (profit and loss statement). In general, it provides an overview of a business’ revenues, expenses and net income over a given range of time (e.g. 1 July 2017 to 30 June 2018).
3. Cash flow statement (statement of cash flows). In general, it provides an overview of a business’ cash inflows and outflows over a given range of time (e.g. 1 July 2017 to 30 June 2018).
Personal financial statements
In a similar vein to above, getting a handle on the past, present, potential future financial performance of your household (i.e. your household finances) through the use of your very own ‘personal financial statements’ can be beneficial.
Importantly, applying the abovementioned financial statements to your household doesn’t have to be complicated. Below we have provided you with simple example templates of how this could be done.
Balance sheet
| Personal Financial Statements:Modified Balance SheetExample Template (D/M/Y) | |||
| Assets | Liabilities | ||
| Personal items | Estimated value | Loan balances | Estimated value |
| Family home | $ | Home loan | $ |
| Vehicle | $ | Vehicle loan | $ |
| Household possessions | $ | Real property loan | $ |
| Other | $ | Other | $ |
| Cash or cash equivalent | Estimated value | Cash or cash equivalent | Estimated value |
| Cash | $ | Credit card debt | $ |
| Current account | $ | Other | $ |
| Savings account | $ | ||
| Other | $ | ||
| Investments | Estimated value | ||
| Superannuation | $ | ||
| Managed fund portfolio | $ | ||
| Real property (ex. family home) | $ | ||
| Other | $ | ||
| Total assets | $ | Total liabilities | $ |
| Net worth | $ |
After completing your balance sheet, you may find the following videos helpful, especially around improving upon your financial literacy with regards to assets and liabilities:
- Liquidity.
- Asset allocation.
- Negative gearing.
- Debt management.
- Compound interest.
- Risk and investment.
- Dollar cost averaging.
- Borrowing in your SMSF.
- Personal insurances: Managing risk.
- Estate planning and passing away intestate.
- Monetary policy, cash rates and interest rates.
Income/cash flow statement
| Personal Financial Statements:Modified Income/Cash Flow StatementExample Template(D/M/Y to D/M/Y) | |||
| Income/cash flow in | Expenses/cash flow out | ||
| Income | Estimated amount | Expenses | Estimated amount |
| Net salary | $ | Home | $ |
| Net bonuses | $ | Living | $ |
| Cash income (interest) | $ | Vehicle | $ |
| Investment income | $ | Transport | $ |
| Pensions | $ | Leisure | $ |
| Allowances | $ | Entertainment | $ |
| Rental income | $ | Mortgages repayments | $ |
| Other | $ | Other debt repayments | $ |
| Insurance (general and personal) | $ | ||
| Other | $ | ||
| Total income/cash flow in | $ | Total expenses/cash flow out | $ |
| Net income/cash flow | $ |
After completing your income/cash flow statement, you may find the following videos helpful, especially around improving upon your financial literacy with regards to income, expenses and cash flow in general:
- Beliefs on money.
- Salary sacrifice.
- Credit cards.
- Tracking your spending.
- Drawing down your superannuation.
- Money personality and spending habits.
Moving forward
Thinking of your household as a business can be an interesting thought, but it’s important to note that running a successful, long-term household also requires proper, ongoing management accounting.
Consider the following abovementioned questions, but now in the context of your household:
1. How well did your household perform for a given period?
2. Where does your household stand financially at a given period?
And, in light of an assessment of the results from the previous two questions,
3. How well placed is your household for the future?
In a nutshell, personal financial statements can provide perspective regarding where you were, where you are now, and where you are headed. This is especially pertinent in terms of whether you are on track to achieve your financial goals and objectives, and if adjustments need to be made moving forward.
After reading this article, you may also like to read our article, ‘Understanding the path of the financial lifecycle’ – namely, your progression from financial dependence to independence with regards to wealth accumulation and cash flow generation.
If you have any questions regarding this article, please do not hesitate to contact us.
