Project 1—Personal Financial Information
Supplement: Personal Balance Sheet
Before creating a budget, it is a good idea to be aware of how much money you have and how much money you owe. You can put this information into a financial statement called a Balance Sheet to check out your personal worth or personal equity.
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Imagine that you have decided to travel the world and you need to get your hands on as much cash as possible.
You have decided that the fastest way to get a lot of money is to sell off all your possessions. But how do you know if this will raise the money you need? A starting point is to estimate the value of your belongings so you can project how much money you will end up with. You also need to consider any debts you have that will need to be paid out of your projected cash.
Write the title “Balance Sheet” in the middle at the top of a piece of paper, and then draw a line down the middle of the rest of the page. Alternatively, you could create a two-column table in a word-processing document.
On the left-hand side of the line, write the title “Assets” and list all of your possessions with a dollar value beside each. When in doubt, estimate or guess at a low value.
Grouping the items together can make it easier to organize. For example, Cash could include the money in your wallet and any money you have in the bank; Music could include your portable music device and CDs; Jewelry could include watches, rings, and necklaces; and Clothes could include shirts, jeans, belts, and so on.
If you have lent money to someone, include this amount in your list because you will want this money back for your trip. Don’t worry about the values being exact—this is just to give you an estimate of how much money you already have access to. When you are finished with your list, calculate the total and place this number at the bottom on the left-hand side of your paper. This would be the money that you would have if you liquidated all that you own. To liquidate means to turn into cash. Check out Screen 1 in the “Calculating Assets” animation for an example.
That is a good start for your trip; however, before you depart, you need to clear up any outstanding debts that you have.
On the right-hand side of your paper, write the title Liabilities and list anybody you owe money to. For example, if you borrowed money from your friend to go to a movie, write your friend’s name and how much is owed. Put the total of how much is owed under the word “Liabilities.” If you do not owe anybody money, write “Total Liabilities = 0.00” under the title “Liabilities.” Check out Screen 2 of the “Calculating Assets ” animation for an example.
Now you have to see how much money you have left to spend after you pay everybody that you owe. Under “Total Liabilities,” write the word “Equity” as a title. Check out Screen 3 of the “Calculating Assets” animation to see how this is done.
This amount is called your personal equity, or your worth after your debts have been paid. In order to check your subtraction, add your total liabilities to your total equity. This amount should be the same as the total assets. See Screen 4 in the “Calculating Assets” animation.
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Do you have enough money left for your travels?
If not, you may have to get a part-time job or take out a loan to be able to complete your world travels; or, if you already have a job, you may have to increase your hours or put off your trip for a bit. This financial information will help you to make decisions about your future.
Submit the Balance Sheet to your teacher.
Continue to the “The City” Module 5, which is about income, expenses, and budgets. This will help you create a fully developed plan to achieve your goals.