A balance sheet shows you at a glance what you own, what you owe, and what the difference is. The difference is your “net worth” – and the greater your net worth, the more you’re in a position to meet life’s financial uncertainties.
It’s called a balance sheet because your assets minus your liabilities always equals – balances – your net worth.
If you owe more than you own, your net worth is a negative number, and that’s an early indication of possible financial problems or bankruptcy in your future.
Here’s a simple balance sheet. See Figure 1. We see that John and Jane have added up the fair market value of their major possessions – their house, car, furnishings, cash in the bank, and retirement savings – and have total assets of $570,500. But when we subtract what they owe – their first and second mortgages, car loan, student loan, and credit card balances – their net worth (the cash they could come up with if they sold everything) is $369,000. [Read more…] “Is Your Personal Balance Sheet – Your Financial Snapshot – Giving You a True Picture?”