What is a personal financial statement?

A personal financial statement is a document that outlines an individual's financial situation. Assessing someone's financial situation is done by compiling a list of the individual's assets (e.g. cash, bank accounts, real estate, cars and investments) and a list of the individual's liabilities (e.g. credit card debt, mortgages and other loans). Subtracting the individual's total liabilities from their total assets will provide that individual's net worth.

Why do I need a personal financial statement?

There are many reasons why you may want a personal financial statement. You may require a personal financial statement in any of the following circumstances:

  • to obtain a loan;
  • to make a guarantee;
  • for various investment transactions;
  • to meet a co-op board's financial requirements;
  • to develop an estate, retirement, or other financial plan;
  • to develop strategies for minimizing income taxes;
  • to identify property under a divorce or separation proceeding; or
  • for the purposes of running for public office.
What does "net worth" mean?

Net worth is the difference between everything of value that a person owns and all the debts that that person owes. In short, a person's net worth is the value of all assets minus the value of all liabilities. If the person has more assets than liabilities, then that person has a positive net-worth. If the person has more liabilities than assets, then that person has a negative net worth.

What are assets?

Assets refer to anything that is owned by an individual or corporation that has a monetary value. Assets may include any of the following:

  • cash;
  • cash equivalents (e.g. Certificates of Deposit, money market accounts, bank accounts);
  • investments (e.g. stocks, bonds, mutual funds, savings bonds);
  • retirement funds, (e.g. 401(k) or 403(b) plans, Individual Retirement Accounts (IRAs), Registered Retirement Savings Plans (RRSPs));
  • real estate;
  • personal property (e.g. cars, boats, planes);
  • household goods (e.g. furniture, antiques, jewelry); and
  • claims against others.
What are liabilities?

Liabilities refer to financial obligations, debts or claims owed by an individual or corporation to another party. Liabilities may include any of the following:

  • loans (e.g. mortgage, student loans, bank loans, car loans);
  • credit card balances (e.g. Visa or Mastercard; department store cards);
  • taxes owed (e.g. real estate taxes or income taxes);
  • child support and other financial obligations; or
  • any miscellaneous amounts that are owed.
What are "contingent liabilities"

Contingent liabilities are potential debts that you will be responsible for if certain events occur in the future. Contingent liabilities may arise from any of the following:

  • pending lawsuits;
  • disputed claims;
  • cases under appeal;
  • possible tax assessments; or
  • contract disputes.
What is a secured debt?

A secured debt is a debt backed by collateral. Lenders ask for debts to be secured in order to minimize the risks related to lending. For instance, a mortgage is considered a secured debt because the lender can seize the property to pay off the debt if the borrower defaults.

What is an "endorser" or "guarantor"?

An endorser or guarantor is a person who agrees to pay any losses directly to the lender should the debtor default. If you are an endorser or guarantor, you are in effect, assuming the financial responsibilities of another person(s) debt if they default on their loan payments.

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