Numbers are an objective reflection of an individual's financial situation. By analyzing key financial data, details can be revealed across multiple dimensions, including income, expenses, debt, and savings. Personal financial statements (PFS) are tools for recording and analyzing an individual's or family's financial situation, primarily including three types: balance sheets (reflecting assets and liabilities), cash flow statements (recording cash flows), and income and expenditure statements. Their core function is to support financial decision-making (such as installment payment discounts, paying personal income tax, applying for credit for school, preparing retirement and estate plans), applying for credit loans, fulfilling government officials' obligations to disclose assets, and reflecting an individual's economic situation through the three elements of assets and liabilities. The statements cover dimensions such as income (salary, investment income), expenses (daily expenses, loans), assets (cash, stocks, real estate), and liabilities (credit card debt, mortgage payments). The process of creating a PFS requires collecting and classifying financial data, often using Excel or accounting software.
Definition of Personal Financial Situation
A personal financial statement reflects the assets, liabilities, and net wealth of an individual or family on a specific date. It is the primary financial statement for an individual. Unlike a company's balance sheet, the third element of this statement is not owner's equity, but net wealth, expressed as a total amount. In a statement of financial position, assets are arranged by liquidity, with more liquid assets listed first. However, assets do not need to be categorized like businesses. Assets, liabilities, and their changes should be recognized using the accrual basis, just as for businesses. Assets and liabilities can be valued at cost, but fair value on the balance sheet date better reflects an individual's or family's financial situation. When assets are valued at fair value, an "unrealized capital gains tax" item is also generated. This is because when assets are sold at fair value, the individual or family is required to pay income tax according to income tax law. The income tax on unrealized capital gains allows the statement of financial position to reflect the individual's or family's actual net equity, which is the difference between total assets and liabilities and the income tax on unrealized capital gains.
Personal Asset Classification
Personal assets can be specifically classified as follows:
Current Assets
Current assets include cash and property that can be easily and without loss converted into cash (such as demand deposits). Current assets are used for daily living expenses, purchasing goods, paying bills, and loan interest, etc.
Investments
Investments are assets used to generate returns. Financial investments often constitute the majority of these assets, including company stocks, government bonds, corporate bonds, long-term deposits, funds, insurance, pension plans, trust plans, and so on. In addition, there are some non-financial investment assets, such as stamps, art, and real estate. The liquidity (i.e., ease of conversion to cash) of different investments varies considerably; generally, financial assets are more liquid than non-financial assets.
High-Value Tangible Assets and Other Personal Property
High-value tangible assets are items used in daily life, are relatively expensive, and constitute a large proportion of an individual's assets. These mainly include housing, cars, high-end furniture, and high-end jewelry. Other personal property includes clothing, home appliances, and electronic products. Except for housing, the market value of other personal property often decreases significantly after it is put into use.
Conclusion
This numerical information has a significant impact on personal financial decisions, credit loan applications, and government asset disclosure obligations. Therefore, understanding and analyzing these figures is crucial for managing personal finances.
