Once you understand what assets and liabilities are, you can begin to organize yourself. A common tool used to organize your assets and liabilities is referred to as a Personal Balance sheet.
The 1st step towards composing a Personal Balance sheet is listing all of your Assets (items of value you own) Be sure to list the information needed to access these accounts and calculate the most recent values for each:
- Saving Account(s)
- Checking Account(s)
- Non-retirement investment(s) / brokerage account(s)
- Retirement Account(s):
- Employer Retirement Account(s) – 401K, 403B, 457
- IRA – Traditional, Rollover, Roth, SEP
- Pension(s)
- Accounts for Dependent(s)
- Educational IRA
- 529 Plan
- Custodial Accounts
- Business Ownership
- Company stock
- Ownership stake in personal business another
- Private Equity
- Real Estate
- Primary Residence
- Vacation Property
- Investment Property
- Other Assets (tend to be a little complicated
- Cash Value life insurance
- Irrevocable Trust (so long as you’re the beneficiary!)
- Inherited IRA
- Collectibles of value
- Vehicles (unless they’re leased of course!)
Now its time to categorize your assets and get to the total. Organizing information like this can help you identify where your financial stress is coming from, There are 4 categories assets can be split into:
- Free & clear funds also known as liquid assets – This means you can easily access the money within a week or so without any restrictions. Which includes: Checking/Savings accounts, Non-retirement investment accounts, Vested company stock(s).
- Later on assets also known as retirement accounts – These accounts cant be accessed until after 60years of age with out any penalties. Which include: Employer Retirement plans, IRA’s, Pensions, Company stock
- Kids Assets – These are any accounts used to benefits your kids. This includes: 529 Plans and Custodial Accounts
- Home – Any owned real estate. Includes home and vacation properties
- Other hard to sell assets. Includes: Vehicles, Investment properties, Ownership stake in business, Collectibles, Cash value life insurance, Irrevocable trust which your a beneficiary ion
Step 2 would be to list all of your Debts (IOU’s!). Three key information needed when listing debts is 1) Amount owed, 2) Interest Rate and 3) Monthly payments. Don’t forget to list the information to access the accounts and update the most current values as you would with assets:.
- Credit Card balances
- Past due bills
- Personal Loans owed to banks/lenders
- Back taxes owed to IRS
- Line of credit
- Auto Loan(s) (or future lease payments added up)
- Private student loans
- Federal student loans
- Property Loans
- Mortgage
- Home Equity Loan
- HELOC (Home Equity Line of Credit)
- Monies owed to family/friend
Once you’ve finished listing all your debts/liabilities, its time to categorize them as well.One way to categorize them is based on how it was accumulated and if it was used to purchase an asset. Some categories that can be used are:
- Lifestyle Debt: Credit Card debts, Past due bills, Persona Loans owed to banks/lenders, Line of credit, and financed purchases (ie.appliances, furniture. electronics, etc)
- Student Loans: Federal Student Loans and Private student loans
- Auto Loans
- Home Loans: Mortgage, Home Equity Loan, HELOC (Home Equity Line of Credit)
- Money owed to family/friends
- Back taxes owed to IRS
- Other Debt: Investment real estate debt, & Loan against cash value
Now that you have finished composing your balance sheet it’s time to ANALYZE it and come up with a game plan. Find out how your assets compare to your liabilities. If your liabilities are greater than your assets it’s time to start finding a solution that can help balance them out.