Making a Monthly Personal Balance Sheet

More than a few times, I’ve mentioned that I enjoy calculating my net worth on a regular basis and using that to see how my personal financial situation has improved over time. It’s pretty easy to do this – just create a little table with two columns, one being the date and the other being your calculated net worth. You can then use a spreadsheet to make a nice little graph of this information, allowing you to really see the benefit of all of your little moves over time.

Sounds simple, doesn’t it? The problem with this picture, though, is actually getting all of that information. In order to be able to really see your progress, you need to calculate your net worth repeatedly over time. You might also want to keep track of other things over time, such as your total savings or your monthly spending over a long period.

How do you come up with that data? The easy way to do it is to create a simple net worth calculator. Each week or each month or each quarter, you just drop in the balances on your accounts and it keeps track of your net worth over time for you – nice and easy.

family cfoAfter reading Kim Snider’s excellent book How to Be the Family CFO, though, I’ve really come around to the idea of assembling a monthly personal balance sheet. Once a month, I sit down, figure up every number that might be a good indication of my financial state, jot down some explanations, and save that document for later. Whenever I want to look at any aspect of my personal finance growth, I just need to pull out a few of these statements.

Snider offers a great tutorial as to how she creates her own statements in her book, but I’ve found that the statements that work for me are quite a bit different than her example. Here’s how I assemble my own personal finance statements.

First of all, I’ve started doing them on a very regular schedule. I assemble one of these on the last day of every month. For me, it’s very important to do these statements at the same time each month simply so that I’m normalizing for all of the monthly things that happen in my life. For example, each statement includes one mortgage payment, one electric bill payment, one cycle of paying off all of our credit cards (since we use cards for our routine purchases), and so on.

My personal balance sheet contains four sections.

First, income. I include every source of income for the month, including their values. I include cash gifts on this list – if my wife and I receive $50 as a gift from an older relative, we list it here to keep things straight. I try to divide up the income as clearly as possible, noting income from The Simple Dollar, income from other writing endeavors, income from consulting, my wife’s income, and other sources of income on separate lines. I totaled these at the bottom. I do not include interest earned or investment growth as income here – I note them below in the asset section.

Second, expenses. This section takes by far the longest, but it’s well worth it. I go through our expenses and sort them into categories: food and household expenses, children’s expenses, entertainment, utilities, our mortgage, and a few other basic categories. If there’s anything exceptional, I put them in as a separate line by themselves, and I often add notes off to the right to note anything unusual. As with the other section, I total these at the bottom.

Third, assets. I list every account and major asset that I own along with the balance of that account or the value of that item, then I total them.

Finally, debts. Again, I list all of my debt accounts along with the amount I still owe, then I total them.

I also include a summary section. I like to look at income minus expenses (how much money I retained this month) and assets minus debts (my net worth right now).

Why not use a package like Quicken or Microsoft Money to do this? I do not like this information to be reliant on a software package that requires updating (which means buying a new copy) every few years. Keeping these records in an open document format (since I assemble these with OpenOffice) means I’ll be able to access these documents forever without the need to update software unless I want to. Quicken and Money are fine packages, but they require you to get on board with updating software over the long term, and if I can do the same things myself, I’d rather avoid the cost and the related technical issues.

Using these statements for long term analysis There are three big things I like to look at over time.

First, income minus expenses over time. This is the so-called “gap,” the one that is the actual demonstration of how well you’re truly spending less than you earn. This number should be as wide as possible. If you see it narrowing, it’s time to focus – ideally, it should stay roughly the same or gently widen over time (as your income goes up).

Second, assets minus debts over time. This shows your net worth growth over time. If your “gap” is wide (from the above graph) over time, then this should be steadily going up over time – sometimes sharper than others (when the stock market is going well).

Finally, change in assets each month (minus income) This shows the growth in your investments over time not including your contributions. When you see your assets increasing each month at a rate that’s greater than your expenses, then you’ve reached a point where you can pretty much do whatever you like.

These three pictures create a great visualization of how your personal finances are improving over time and, for me, they provide motivation to keep my nose to the grindstone.

All you have to do to have this information is simply make a balance sheet each month. After a few months, you can take those numbers and create some very compelling views of your personal finance situation – and you don’t need Quicken or Money to do it.

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51 thoughts on “Making a Monthly Personal Balance Sheet

  1. Carrie says:

    I do the same thing every month. Technically, income and expenses make up an income statement (or profit and loss), while assets and liabilies make up a balance sheet.

  2. Glen Allsopp says:

    Excellent post. I completely agree, if the ‘gap’ starts to narrow then you definitely need to look at certain areas.

    This is quite a bit of work, but for financial security and peace of mind…it’s worth it.

    Stumbled!

    Cheers,
    Glen

  3. Jody says:

    I am assuming your house is an asset? What do you use for the value of your house?

  4. Adam says:

    I have been doing this for over a year. I find one of the most valuable benefits of this is that instead of just looking at what I carry in debt, I see right next to it where my retirement and savings accounts stand. Although my net worth isn’t huge, it really keeps me motivated to see how much I have in assets. Since I do this in an excel spreadsheet, I keep a separate tab with the monthly totals and a graph to visually track my progress…all great tools.

  5. Sara says:

    A few months ago I developed my own tracking spreadsheet based on previous posts here and among other sites. I figured out what would be important to me and spent a good few weeks mapping it out. First page is a breakdown of all expenses, debt, income etc and the following sheets break down my variable expenses by month (and with charts).

    a blank version of it can be found here:
    http://saracollaton.googlepages.com/budget

  6. Bernardo says:

    I used to do this on a spreadsheet, and then switched to Microsoft Money. It gives us the flexibility to do reporting, drill-down, etc.

    I you do not want to pay for the software, there is free software like gnucash.

  7. K says:

    I used to use excel but I have found that GNUcash, which is free, is very similar to Quicken and MS money. I’m surprised you don’t use that since I think you have mentioned it in the past. There are some online accounts that don’t automatically download into it but most do, and it’s no harder than using Excel, and I like the graphs and everything.

  8. Saver Queen says:

    What does everyone think of Wesabe?

    I use it – and I like it, although it requires regular updating, which is a bit of a pain.

    The new version allows you to track your budget goals and achievements (or failures).

    it’s also free.

    Has anyone else used Wesabe and what do you think?

  9. Scordo.com says:

    Trent,

    It’s sounds like you’re adding assets to a monthly budget document and I think that’s a good idea. Many people do look at their finances from a monthly perspective, but they only look at expenses and income, including assets really does provide a “big picture” look!

    Thanks for the tip!

    Best,
    Scordo.com

  10. This is a great activity, especially in today’s environment. I was surprised by the “leakage” I’ll call it…things that I didn’t even know we were spending significant portions of our income on.

    It allows for you to factor in things like:
    1) Pay yourself first – set up recurring withdrawals into an investment instrument if you have excess cash projected each month
    2) Consider the impact of a new recurring expense, like say, new car payment or higher mortgage
    and more!

  11. steve says:

    The book link points to the wrong book… it should be:
    http://www.thesimpledollar.com/2009/02/08/review-how-to-be-the-family-cfo/

  12. Seth Rowland says:

    I also am surprised that you don’t use an open-source money solution. I use jGnash, but GNUcash is now on Windows, so if I were starting over I’d look at that too. You can also create your own reports, so you could create one like you outlined above, and automatically generate it each month. It would save you a ton of time!

  13. bethh says:

    I do this every payday. I actually use my yahoo email and send myself an update, that I then keep in a folder I’ve labeled Money Reports 2009 (I have one for 2008 too).

    I enter: amount in, amounts transferred (to my bill paying account, budgeted spending account, short-term savings, travel, etc.). Then I list the balances of my non-retirement accounts, including my lone debt balance (student loan). Finally, I wrap up with thoughts, comments, and anticipated expenses that I see coming up.

    I started doing it just to track my loose budgeting (I also separately track my spending), but I find that it’s really an interesting way to see how I’m doing. I just took a look and at end of Jan 2008 I had a negative net worth, whereas now it’s positive – and I wouldn’t have such feedback without easy access to that information!

  14. Mike says:

    I just started using Mint online, also updates to the iPhone which is nice. I read the previous discussions about Mint and other programs. I think for those who don’t have a lot of time it’s a great tool. They seem to be adding more options, you can add assets like vehicles and homes, (but you have to enter the value, they don’t value it or estimate depreciation, but I used Kelly blue book for my truck). I haven’t tried the other online programs.

  15. Corey says:

    I’ll have to check into the open source financial software that some have mentioned. However, I don’t think it is fair to say that software like MS Money “requires” updating. I have stuck with my original version, MS Money 2002, and it continues to serve me just fine. Plus, to get the functionality and level of detail Money provides out of a spreadsheet (and believe me, I love me some spreadsheets!) would take significant set up and maintenance.

  16. Amy says:

    I created an Excel spreadsheet more than four years ago and it still works for me. I like using Excel because it’s a blank, flexible slate, and I can use the file both on work and home computers (I cannot install software on the work computer), which also provides me a regular backup solution.

    Anytime I check my credit card activity online I add notes about what I bought that was out of the ordinary using the comment feature on the cells. It’s also easy to predict my future income/spending; I have all my recurring payments and salary showing for the next year and it’s easy to see if I’m staying in my loosely-defined budget. It’s also interesting to see my utilities go up and down at a glance, when yearly bonuses or tax returns jump in, how my cable bill has increased as I felt I could afford more, what I paid in car registrations/insurance the last few years, etc.

    Now that I’m living in one home while trying to sell another, I can see how much I’m blowing on that other mortgage/utilities and it’s giving me a reality check on whether I should accept less to sell the house. Every thousand dollars in price seems precious, but when it’s costing me $11k a year just to have it sit there empty, maybe I should rethink my selling price flexibility.

  17. Andrew says:

    Another vote for GnuCash here. I use it and do all that you talk about and more. From your post it sounds like with less work too. I can just enter transactions all month long and then get reports like you are talking about without any additional work.

  18. MarcR says:

    So quick question here… Do you include your 401(k) balance? I would think not since it could skew your net worth much higher than it really is and it’s not accessible without taxes and penalties taken into account. If you were to include, maybe subtract ~40%? I still don’t like the idea.

    Also, I think I remember Trent saying he used Zillow to value his house as an asset compared to the liability of his mortgage. Thoughts? What about valuing your car on KBB as an asset to offset the liability of your auto loan?

    I’m almost of the opinion that I should subtract 10% or so from these hard asset values for a quick sale in an emergency. I prefer to see the balance sheet more of a measure of my liquidity than my net worth…

  19. Neil O'Rourke says:

    Money doesn’t require constant updating, unlike Quicken. You can choose to update, but there’s nothing stopping you from sitting at a particular version for years. Us poor Aussies, for example, are still stuck at Money 2005.

  20. Trent, I have done a Personal Balance sheet for over a year and a half. It wasn’t perfect at first, I did a lot of tweaking to get it where I enjoy doing it.

    I tinkered with a sheet on how much life energy, that didn’t work. I didn’t have a graph initially.

    The key is to take someones template,and tweak it to your lifestyle. Make it work for you, and you will enjoy doing it.

    What works for me (or trent) may not work for everyone.

    -Nate

  21. Kat says:

    Anybody use mint.com? I wouldn’t have time to categorize every little thing I buy for the whole month but this does it for me so I can actually track my spending like everybody says you should. :) It also calculates your net worth. If you can access your bank account, retirement savings plan or credit card using an online login, you can use mint.com to track it.

    It updates all your accounts (retirement, savings, credit cards spends, anything) when you log in and then lists and automatically categorizes all your money in and out from all your accounts (food, furnishings, travel, investment, etc) based on the charge name. You can change the categories if you want. For example, you can see the total spent on food for the whole month and which stores you went to. You can set a budget for each category and see if you’re on track to spend too much or too little for the month in each category. It also graphs all the categories together so you realize you spend 30% of your money on shopping!

    I have had great success with it and easily saw where I could cut out spending.

  22. EngineerMom says:

    My husband and I set up a spreadsheet several months ago to help track expenses month-to-month. He does the majority of our money managing, so he picked the categories (“credit card” for everything that goes on the credit card, including his contribution towards tuition (about $300/semester), our car/life insurance (through one company), gas, etc.). I don’t agree with all of his choices (I’d rather break everything out), but just having the spreadsheet makes communicating about money easier.

    We also have one section devoted to what we’re putting in savings. Since we get a better interest rate with a higher volume in a single account, we keep track of how much of that money is devoted to different goals in the spreadsheet, rather than spreading it among various accounts.

  23. Daniel says:

    Has anyone tried out Mint.com? I have been using this site for about a year and the functionality of it is impressive, as well as the security in place to protect your information.

    With one log in I can get a great view of all of my accounts; All 12 ING CD’s, ING Savings, my Checking Account and Savings, Personal Loans, Student Loans.

    It tells me when my bills are due – it tells me when I’ve paid more for eating out than I did in the previous 30 days.

    I would guess that about every month or so the system is upgraded with new features and new accounts that you can add, but it does not affect your ability to use the system or view your data.

    I would check it out if I were you!

  24. Steve says:

    Do you really need to update Money? I used Money 99 until about 2004. I upgraded to the latest version in ’04 but stopped using it about a year later (just out of laziness/lack of time.)

  25. The Personal Finance Playbook says:

    I use Mint.com – I’ve been using it for almost a year. They’re still working on it. It’s free though. That’s one nice thing about it. I know some people prefer Wesabe, but I’ve been told Mint is the better software. I’ve personally never used Wesabe.

  26. frugalliz says:

    I do something similar every month, except I don’t calculate my net worth. I just look at income vs expenses to see how much we saved.

  27. Julie says:

    I’m using Quicken for Mac that I’ve had since 2005, and I’ve never been prompted to update. Is there something I’m missing here?

  28. Damon says:

    Hi Trent,

    What’s your view on these comments regarding Suze Orman:

    http://www.thebigmoney.com/articles/impressions/2009/02/10/if-you-knew-suze-we-know-suze

    Damon

  29. I do the same thing for free on Mint. It’s a secure site, so I feel safe having my personal info on there, although I could see why some would be turned off by posting their account data online. Either way, keeping track of your money with an excel sheet is a great way to visualize what you spend and save!

  30. Anne says:

    I highly recommend MoneyMinder at http://www.FinancialRecovery.com. Yes, it’s $59.95, but it’s worth it! Rather than being a rearview mirror looking back at what you spent, you create a spending plan for the month, and then track your expenses. There is also an Annual Plan, a sheet for Wants/Needs, one for periodic expenses, and a Net Worth page.

  31. richerandslimmer.com says:

    I use a simple Excel spreadsheet where I paste all my income/expense numbers from online statements. I have intentionally not automated the process because I like the process of going into my bank accounts and seeing that the amount has grown.

  32. Quicken wants you to update yearly but you don’t need to. My version is three years old. The time you save by being able to import data from multiple online accounts (particularly investment accounts) is enormous compared to manual entry in a spreadsheet. One click and you have a net worth report. It is also easier to do net worth comparisons, exclude categories, etc. using a software tool. But for families with limited data to use, a spreadsheet is perfect.

  33. Mike says:

    I’ve used Mint.com and it’s slick, but I like Yodlee.com much better (and Bank of America’s My Portfolio, which uses Yodlee’s services).

    Part of what it provides is exactly what you’re doing: comparing income vs expenses, and assets vs liabilities. However, it does this automatically, it shows the changes graphically, and you can view those changes either weekly or monthly, at various time scales (3 months, 6 months, this month, last month, etc). It takes a bit of effort to initially set everything up, but it is very easy to maintain.

    While my income and expenses bounce around a lot, I have a positive net cash flow; and while my net worth is very negative, it’s been slowly creeping upwards since last June.

  34. Rocketman says:

    I use Quicken and only upgrade it when I upgrade my computer (if then) currently I am using Quicken 2000. I have been using Quicken ever since I got my computer back in 1993 (just after we got married) and have kept all the data. So I can see how my net worth has been going for 16 yrs, and figure expenses for that same time period – not that I really do much with data over 5 yrs old – but it is nice to figure out when we have a question.

  35. Rasto says:

    I found myself using RQ Money (on my flash disk) that appears to be small yet very powerful software to track my incomes and expenses. The link is: http://www.rq.sk/rqmoneyen.html for those of you who want to have a look. Starting this year I make all efforts to track every cent I spend and it starts to pay off already.

  36. Lance Ware says:

    I used Mint.com and I love it. Its a once and done senario. I have grown with since beta and it has gotten pretty impressive. I used to use Microsoft Money but the constant logging of transactions got to cumbersome for just calculation net worth. With Mint, its definitely a once and done solution. I’ll be glad when they start to add more information.

  37. CF says:

    I’ve been doing a monthly profit & loss (income) statement for many years. Like you, I track each type of income and each expense, and also have a section for after-tax investing (mainly 529s for the kids), so I can see a net both before and after the investments are made. Depending on the net balance for the month, I have a formula for putting that additional amount into paying off our HELOC (almost at zero!) and to an ING account with various sub-accounts (vacation fund etc).

    I use Excel – it’s very simple, doesn’t take much time, and each year is a different tab, so I can quickly look at years of data. I have a separate Excel worksheet for net worth, which I update quarterly.

  38. Ilah says:

    I’m an accountant/bookkeeper, I use Quicken for my at home finances and have used several other business specific accounting software including every QuickBooks,QBPro, QB Premier and QB Enterprise. The QB, is okay, but like Quicken it assumes everyone using it is an idiot. It can be very frustrating not to be able to do certain journal entries, so one has to do 2-3 JE’s to actual create one. I used to like Quicken for my home finances, it was easy to use and fairly efficient. But then I upgraded to the 2007–ugh! Once again a software company that “improves” their product only to make it worse.

  39. dave says:

    i use a plain excel spreadsheet for my monthly balance sheet. have been doing it since 2007 and it’s nice to see the historical data easily. i also keep a worksheet for the following year with assumptions plugged in, so i can estimate future activity. and i don’t have the extra worry about my data on some company’s server.

  40. Sacha Chua says:

    If you feel like sharing your progress (anonymously or not), there’s a site called Net Worth IQ which will let you post monthly summaries, and will even chart them for you and compare them against people of similar circumstances. =)

  41. Lissa says:

    I can’t speak for Quicken, but the other posters about Microsoft Money are correct – you are never prompted to upgrade it. I too used Money 99 for several years, then used Money 2003 and 2007 – only because I got them free with TaxCut. I just wish it had a Mac version and I’m now running it via Fusion.

  42. CPA Kevin says:

    I use Quicken 2006 and am now getting notices that it won’t be supported after 4/30/09. However, I can still use the program, I just can’t download transactions, update my portfolio values, etc. which is normally what I use it for.

    So now I have to decide if I want to pay the upgrade charge – $40 – or just go to a free program or create my own with Excel. Excel won’t have the downloading and easy reconciling capability like Quicken does, but I could customize it more easily.

  43. Brigitte says:

    I agree with the others about GNUCash. It’s free, open-source, and a real accounting program that works quite well. As far as accounting goes, better than Quicken I think.

  44. carlos says:

    I also use GNUcash, it is great. On windows I use the Portable edition ( http://portableapps.com/de/apps/office/gnucash_portable ), it requires no installation (I have it on a USB Stick to be able to use it at work). On my home, I use the OS X version and I keep the data synced through the USB stick.

  45. susan says:

    I have an excel spreadsheet that I track on that’s very detailed. I also use networthIQ for the big picture net worth. If you fill it in every month it’ll give you month over month percentages plus you can see how you stack up against others in your age range, profession or state.

  46. Andee Sellman, One Sherpa says:

    Thanks for your insight here. It always is amazing to me how many people become activity junkies and never stop to see what they’ve achieved financially.(i.e. what’s in their balance sheet!) If more people had a focus on the balance sheet I doubt whether there would have been so much personal debt taken on in the boom times. So many people knew what their monthly payments were but had no focus on how much debt was outstanding. I guess the balance sheet simply brings another perspective which can really show you what you’re actually achieving

  47. Yynatago says:

    Since one of my financial goals is to be able to live of passive income, I found it useful to monitor ratio between my passive income to my personal expenses. Other useful indicators include ratio between direct income (ie work pay) to personal expenses, and the ratio between net asset and passive income.

  48. Jess says:

    What requires you to update Quicken or Microsoft Money? They don’t stop working when a new version comes out.
    Plus, you should know there are plenty of free, open-source programs available on finance.
    Not that you have to use a program, but know that program resources are definitely out there.

  49. Rebecca says:

    Great tips! This is definitely a good first step to making a solid budget.

  50. Barch78 says:

    Mint.com looks really interesting. I am afraid though of entering all my financial institution information. Where does it go and who has access to it?

  51. Ben says:

    I would like to agree with Saver Queen. I have been using Wesabe http://www.wesabe.com for about 6 months. As long as your bank allows for downloading your transactions you can use Wesabe to upload the transactions through their tools it becomes an autamated process. The Security is better than Mint.com because you do not have to save your passwords on the website they are saved to your comptuer. I love the goals, tips and tracking by tags! I wouold recommend it to anyone.

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