Creating a Balance Sheet Using Calc
property are all worth more (see the value listed in the assets section) than they
owe to the lenders for the respective property (as listed in the liabilities section).
This individual could have a nice home, drive a decent car and have a large
screen television in the living room. Yet, if they had to sell everything they own,
they still wouldn’t have enough money to pay off their debts in full.
How can this happen? For young people, it is not uncommon for them to have a
negative net worth because they have yet to accumulate enough assets, or they
have not accumulated enough equity in the assets they own for them to be worth
more than they owe. Moreover, some assets can be more of a liability than they
are worth. Automobiles are a prime example of this. In terms of money spent,
automobiles are one of the most signiﬁcant purchases an individual can make.
Yet, they depreciate in value worse than any other asset an individual can own. It
is not uncommon to purchase a car and have it lose its value up to 30% as soon
as it is driven off the car lot. Examining the personal balance sheet completed for
this lesson, you will note that the asset value listed for this individual’s automobile
is $12,000.00 (cell D16), yet this individual still owes the auto ﬁnance company
$15000.00 (cell D32) for the automobile.
Other liabilities that can negatively affect an individual’s net worth are credit card
loans and consumer loans. Consumer debt refers to those owed for purchases
such as furniture, appliances, and electronics where credit is obtained through
in-store ﬁnancing, check cashing businesses or consumer credit lenders. Debt
incurred through such loans are often for purchasing items that are considered
consumable, which have little or no value to a lender. Electronics, such as
computers or televisions for example, are usually not accepted as assets of value
by lenders on a personal balance sheet because they lose their value very quickly
after purchase. Therefore, as collateral for a loan, it is worthless to a lender
because they could not sell off such property at an auction and obtain nearly the
amount of money that it cost when it was new. Yet, when an individual purchases
these items new on credit, the money that was loaned for purchasing such items
still has to be repaid. Moreover, credit card loans and consumer loans usually
carry with it higher interest rates, which can further negatively affect an individual’s
So why would you need to prepare and maintain a personal balance sheet?
Let’s use purchasing a home as an example. When you apply for a mortgage
loan at a bank to obtain ﬁnancing to buy a new house, the bank is likely to ask
that you present to them a copy of your personal balance sheet along with the
application. Just as we did with the personal balance sheet completed for this
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