Personal Balance Sheet

A personal balance sheet is a financial statement offering a comprehensive view of your financial position. It includes your assets (e.g., cash, stocks, real estate, cars, retirement accounts, ESOP), liabilities (e.g., mortgage, loans, tax accruals), and net worth. By creating one, you gain insight into how much you own, how much you owe, and the true value of your personal finances.

A typical personal balance sheet in Excel might look like:

There might be additional tabs for each asset class, listing all particular stocks, real estate, startups, etc. in the portfolio with details such as purchase price, current price, asset-specific metrics, and performance metrics (P&L, MOIC, IRR).

Having an up-to-date personal balance sheet, reflecting the latest asset prices and portfolio composition, helps in various aspects of financial planning and wealth management:

• Make better investment decisions (allocation, sizing, exit) in the context of the whole portfolio, improving your asset allocation strategy
• Make informed financial decisions (e.g., property purchase, mortgage, car purchase) considering your overall financial position
• Keep track of investments across all asset classes, including both liquid assets and non-liquid assets, ensuring financial security and peace of mind
• Measure portfolio (net worth) performance against benchmarks
• Monitor individual asset performance (including exited investments) to grow investing expertise and learn valuable lessons
• Set spending, budgeting, and savings rules based on current and expected liquidity
• Forecast your portfolio performance to achieve long-term financial goals and plan for retirement
• Share your investment portfolio with advisers and banks (e.g., for financing) as required
• Keep your loved ones informed about family assets (and liabilities) in case of an emergency

Many investors maintain and update their personal balance sheets in Excel. While this is a relatively straightforward exercise, it requires significant effort and time, especially for well-diversified portfolios. The usual steps to update a personal balance sheet include:

1. Check all bank accounts for current cash balances and loan (mortgage) amounts
2. Retrieve data from broker accounts for current stock/bond positions and cash balances
3. Check crypto wallets
4. Review pension & mutual fund accounts
5. Update all stock/bond/crypto prices and exchange rates for current values
6. Estimate current values of private exposures like real estate, startups, funds, ESOP, vehicles (cars), private loans, or any other assets and liabilities
7. Consider any tax accruals that need to be reflected on the liabilities side

Given the number of manual operations involved in updating a personal balance sheet, investors tend to perform this exercise irregularly – at best quarterly or even annually. This often leads to suboptimal investment and finance decisions that don't account for the entire portfolio composition.

Recognizing the importance of maintaining an accurate and up-to-date personal balance sheet, we are building 8FIGURES – the first balance sheet automation mobile app designed by professional investors. This tool aims to simplify the process of tracking your financial position, making it easier to stay on top of your personal finances and make informed decisions about your financial future.

In conclusion, a personal balance sheet is an invaluable tool for financial planning, wealth management, and maintaining overall financial health. By providing a clear picture of your assets, liabilities, and net worth, it enables you to make informed decisions about budgeting, investing, retirement planning, and achieving long-term financial security. Regular updates to your personal balance sheet, along with consideration of other financial statements, will help you stay on track towards your financial goals and ensure a strong financial position for years to come.