A personal balance sheet is a financial statement providing a snapshot of your assets (e.g. cash, stocks, real estate, cars, retirement account, ESOP), liabilities (e.g. mortgage, loans, tax accruals) and net worth. By putting one together, you can get insight into how much you own, how much you owe, and how much your net worth is.
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 all the details such as a purchase price, current price, asset-specific metrics, performance metrics (P&L, MOIC, IRR) etc.
Having a personal balance sheet updated for the latest asset prices and portfolio composition helps to:
- make better investment decisions (allocation, sizing, exit) in the context of the whole portfolio
- make better financial / purchase decisions (e.g. property purchase, mortgage, car purchase)
- keep track of investments across all asset classes and have financial peace of mind. “Hard to track” / “too many investments” should not be an excuse for a lack of portfolio diversification
- measure portfolio (net worth) performance vs benchmarks
- keep track of all individual asset performance (including exited) to grow investing expertise (lessons learnt)
- set spending / budget / savings rules including based on current and expected liquidity
- forecast your portfolio performance to achieve your long-term financial goals / financial freedom
- 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 keep track of and update their personal balance sheets in Excel. Although 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:
- check all bank accounts for the current cash and loan (mortgage) balances
- get data from broker accounts for the current stock/bond positions and cash balances
- check crypto wallets
- check pension & mutual fund accounts
- update all stock/bond/crypto prices and exchange rates for current values
- estimate current values of your private exposures like real estate, startups, funds, ESOP, vehicles (cars), private loans, or any other assets and liabilities you might have
- think of any tax accruals that need to be reflected on the liabilities side
Given the number of manual operations involved to update a personal balance sheet, investors tend to go through the exercise irregularly – at best quarterly or even annually. This often leads to suboptimal investment/finance decisions that don’t take into account the whole portfolio composition.
This is why we are building 8FIGURES – the 1st balance sheet automation mobile app designed by professional investors.
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