How to Assess your Personal Financial Position

Canadians go for regular medical check-ups every year to make sure they are in good shape and to detect medical complications early on. The same concept that applies to your health also applies to your wealth. You need to know where you stand financially in the present if you want to make sure that you can maintain your current lifestyle and determine how much you can afford to spend in the future.

Did you know you can apply the financial methods that are use by large corporations to the assessment of your own personal financial status? You can easily set up your own financial statements that will tell you how well-off you really are. It isn’t as hard as you think. You just have to locate and organize some of your financial documents, that is all.


The Income Statement

On a personal level, the income statement is used to determine whether or not your income exceeds your expenses. In other words, are you in the black or in the red?

First, make a list of all your sources of monthly income. Your monthly income will usually be comprised of more than just your salary. It may include what you earn from renting out property, interest payments on your saving account, and profits from the sale of stocks. If you are earning money from any extra jobs or sideline activities, such as translations, tutoring, and selling items on eBay, you must also put them on the list. When you are sure you have thought of everything, add up your total monthly income.

Next, make a list of all your monthly expenses. These may include the monthly payments for your car, your monthly mortgage installments, your weekly shopping, your utility bills, your credit card bills, your medical bills, your monthly taxes, money you spend going out with friends, and even donations you make. When your list is complete, add up your total monthly expenses.

Now simply put the two lists and their totals on a piece of paper (preferably with the income list and total on top) and calculate your net income:

net income = total monthly income – total monthly expenses

If your net income turns out to be positive, it means that you earn enough to cover your monthly expenses and can afford to maintain your current lifestyle. If it is negative, it means you need to cut costs and live less lavishly.

The Balance Statement

The balance statement is used to determine how wealthy you are. In other words, it answers the question of how much you are worth (that is, only in terms of money, of course).

First, make a list of all your assets and how much they are worth. Assets are things you own, such as your cash, your properties, the stocks you bought, your investment in mutual and pension funds, and your car. Now add up your total assets.

Next, make a list of all your liabilities and their amount. Liabilities are things you owe, such as what’s left to repay on your mortgage, car, or education loan. It also includes your outstanding tax obligations. Now add up your total liabilities.


When you are done with both, put the two lists and their totals on another piece of paper (preferably with the assets list on the left and liabilities list on the left) and calculate your net worth:

net worth = total Assets – total Liabilities

If your net worth turns out to be positive, you can be considered well-off. If it is negative, you are not financially fit and need to start thinking of ways to cut down on what you owe other people.

As you can see, setting up your personal financial statements is not rocket science. If you set some time aside to really think about the four lists, you are well on your way to assessing your current financial position.