Create Your Personal
Balance Sheet
As part of your preparation for investing in rental property, creating your personal balance sheet is an important step. Even though you're not General Motors with billions of dollars on your balance sheet, you can think of yourself as an individual "mini franchise" with personal assets and liabilities. Lets discuss the basics of balance sheets…
Your Personal Balance Sheet
A balance sheet is used by both businesses and individuals to show their "net-worth" at the end of a particular period, such as the end of the year. It is like taking a "picture" of the financial condition of a person or business at any given time.
A balance sheet can be thought of as a 'financial yardstick" from which you can measure your financial progress over time. It lets you know the "bottom line" results that come from the fruits of your labor.
There are three basic parts of a balance sheet. They are…
- Total Assets
- Total Liabilities
- Net Worth
The first part of the balance sheet, your "total assets", consists of the fair market value of everything you own. This includes any real estate, cars, furniture, bank accounts, etc. If you were to sell all your possessions and put the proceeds in the bank along with all your existing accounts, the lump sum would be the value of your total assets.
Your "total liabilities" is the second part of your balance sheet. It consists of everything that you owe to creditors. Car loans, mortgages, taxes, bills, etc. would all be combined to equal your total liabilities.
The third and final section of the balance sheet is where your "net worth" is found. Another term used for net worth is "net assets". Your net worth is determined by simply subtracting your total liabilities from your total assets.
Tallying up your net worth at the end of each year is a good practice to measure your financial progress. And, using Quicken software is an easy way to do this. It helps you manage your spending, savings, investments and assets.
For more information on the use and benefits of a personal balance sheet, please visit
The Landlord's Library
book collection. It's your one-stop source for all the practical information that you'll need to greatly improve your rental property business.
Return from Personal Balance Sheet to
Real Estate Investment Property Planning
|
