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Personal Finance

How to Build a Household Financial Balance Sheet (with free template)

Understanding your own financial situation is the first step toward financial security. A household balance sheet helps you address issues and set goals.

The Evermore Team

The Evermore Team

We all deserve to feel confident about our finances. Evermore is here to make sensible investing accessible to everybody.

So, you're new to investing and not sure exactly where to start. We get it; we've all been there! When preparing for your future, creating a secure relationship with your finances is crucial, and financial literacy should always remain top of mind. Here at Evermore, we understand that you may face barriers along the way, but we're here to help you out! We know that the earlier you learn the fundamentals of financial literacy, the better grasp you'll have on saving and investing, especially for your future retirement! 

That's why we're celebrating Financial Literacy Month this month by sharing our top tips for maintaining financial literacy, no matter your life stage. 

Our first topic on the docket? Building and maintaining a balance sheet for yourself or your household, the benefits of doing so, and how it can help you plan for the long run. Keep on reading to learn more!

 

What is a balance sheet? 

When it comes to your spending and saving habits, we understand that during busier months, keeping it all on track can be difficult. Maybe you've recently made a big purchase, you're in the middle of a move, or you're gearing up to head out on vacation - we've all been there!

Understanding your own financial situation is the first step toward financial security. So, how can this be done? Incorporating a balance sheet into your monthly financial assessment helps organize and address issues of overspending and undersaving. 

Balance sheets give you a snapshot of your finances monthly, quarterly, and yearly by breaking down your assets and liabilities. Businesses generally use them to provide insight into what cash and debt a company has, but they can easily be used for households and individuals to track financial health.

Compiling this information on your assets and liabilities is straightforward. Whether you're partial to pen and paper, comfortable with tracking via a spreadsheet, or using a financial management app, there are several ways to get started.

To help, we’ve created a free template on Google Sheets that includes a household balance sheet and a household budget.  Once you click on the link, you can make a copy to edit in your own Google account, or you can download it as an Excel file if you prefer.

 

Getting started with a balance sheet

The first step to creating a balance sheet is classifying your assets, but not all assets are the same. 

If you are following along in the template, start using the nearest month you have month-end information for.

Cash assets

Cash assets are liquid assets and include what you currently have in your chequing and savings accounts, cash, and any possessions of yours that can be converted into cash quickly and without losing significant value. Some of your investments are technically considered liquid because they could be converted to cash quite quickly, but you could be hit with undesirable tax consequences and are resources that are ear-marked for your future, so we will list those separately.

For example:

Cash

 

Cash on Hand

$ 250.00

Chequing Account

$ 1,234.56

Chequing Account

$ 987.65

Savings Account - Emergency Fund

$ 10,000.00

Savings Account - Vacations

$ 3,500.00

Total Cash

$ 15,972.21

 

Investments (in “marketable securities”)

Marketable securities are investments, such as bonds, stocks, ETFs, and mutual funds - investments that could be easily converted into cash.  However, just because you can do this doesn’t mean you’d want to.  Withdrawing cash from an RRSP, for instance, triggers taxes on the withdrawals.  When listing your investments in marketable securities, do them by account type:  Non-registered, TFSA, RRSP, etc.

For example:

Investments

 

GICs

$ 5,000.00

Non-Registered Investments

$ 0.00

RESP - Child's name

$ 3,600.00

RESP - Child's name

$ 2,800.00

RRSP - Name

$ 52,000.00

RRSP - Name

$ 38,000.00

Spousal RRSP - Name

$ 12,000.00

TFSA - Retirement

$ 17,000.00

TFSA - Other

$ 10,000.00

Total Investments

$ 140,400.00

 

Fixed assets

Fixed assets refer to physical assets like any property you own, whether that's a condo, an area of land, a vacation home, or other larger items like cars and boats. Something to note here is that when creating your balance sheet, you should always use their current market value, or at least be as close to that as possible.  The current market value is an estimate of what you would most likely sell the asset for if you had to sell it today.

For example:

Fixed Assets

 

Primary Residence

$ 1,150,000.00

Vacation Property - Name

$ 0.00

Investment Property - Name

$ 650,000.00

Vehicle - Name

$ 45,000.00

Vehicle - Name

$ 15,000.00

Other Fixed Assets

$ 10,000.00

Total Fixed Assets

$ 1,870,000.00

 

Your liabilities

Now, let’s look at your liabilities.

Liabilities are amounts you owe from borrowings like credit cards, lines of credit, vehicle loans, and mortgages.

Not all debt is the same.  Some of your borrowings, like credit cards, might be at high-interest rates.

When you list your liabilities, list them from highest interest to lowest interest.  As a rule of thumb, you would normally prefer to pay off high-interest-rate debt first, so keeping it at the top of the list means it’s at the top of your priorities to eliminate.

On your balance, you can separate your short-term borrowing and long-term borrowing. 

Short-term borrowing

Your short-term borrowing is borrowing that should be used when necessary to fill spending gaps like a credit card or line-of-credit where you are not ideally looking to carry a balance.  In other words, the higher-interest lending which you want to eliminate first.

For example:

Short-Term Borrowing

 

Credit Card - Name

$ 3,256.32

Credit Card - Name

$ 1,345.98

Line of Credit - Name

$ 8,457.14

Line of Credit - Name

$0.00

Total Short-Term Borrowing

$ 13,059.44

 

Long-term borrowing

Long-term borrowing include your term loans (perhaps you took out a debt consolidation loan, or used a loan to finance investments) and the asset-backed loans like your mortgages and vehicle loans.

For example:

Long-Term Borrowing

 

Term Loan - Name

$ 12,789.45

Term Loan - Name

$ 22,555.34

Primary Residence Mortgage

$ 765,798.11

Vacation Residence Mortgage

$0.00

Investment Property Mortgage

$ 499,654.12

Total Long-Term Borrowing

$ 1,300,797.02

 

What’s my net worth? 

In its simplest form, your net worth is calculated by subtracting your liabilities (the amounts you owe) from your assets (the amounts you own).

Because you’ve put this all down in a spreadsheet, or a napkin, whatever you are using (what’s important is that you are figuring it out!), you add up all your assets to get your “Total Assets,” then you add up all your liabilities to get your “Total Liabilities.”

Then you calculate:

Your Net Worth = Your Total Assets - Your Total Liabilities.

If you are using the template, this is automatically calculated for you.

For example:

TOTAL ASSETS

$ 2,026,372.21

TOTAL LIABILITIES

$ 1,313,856.46

HOUSEHOLD NET WORTH

$ 712,515.75

 

Why is a personal balance sheet important?

Creating a personal balance sheet helps you, first and foremost, understand your household financial situation.  It is the first step in setting your financial goals.

You will see all of your assets, liabilities and current net worth in one place. It will help you determine a number of things, such as the impact of saving and investing on your financial health, if you can get out of debt by a specific year, and where your net worth could go in the future. 

 

What's the next step? 

You now know the basics regarding your personal balance sheet and how to determine your net worth, so where should you go from here? 

First, make tracking your balance sheet a monthly habit.  Pick a day of the month that makes the most sense for you, for instance, the first Sunday of the month.  Update your numbers, but also remember to keep your old numbers.  Tracking your progress can help motivate you.

But there is one more piece of the puzzle - your household budget.

Your household balance sheet tracks your assets, liabilities, and net worth, but your budget tracks your income and expenses.  This is how you ensure you don’t spend more than you make and ensure you set aside money for short-term savings like an emergency fund and long-term savings like your retirement nest egg.

Click here to read our blog post about creating a household budget.

If you are already tracking your spending and setting aside money for retirement, be sure to check out our blog post on target date funds, arguably the easiest way to invest for retirement.

We understand that diving headfirst into the world of investing and saving can be stressful, no matter your level of financial stability, but starting is often the most challenging part!  Once you make this a habit, you’ll find that it will help you stay on track and achieve your financial goals.

Be sure to subscribe to our newsletter to receive updates on our latest blog posts and content, all created to help you get smarter about money.

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