How a personal balance sheet will help you reduce debt, earn more money and grow your long-term wealth

A key management skill is the ability to step back from the day-to-day to look at your business from a strategic level and one of the most important tools for assessing the financial health of the organisation is the balance sheet.

As individuals, it is just as important for us to step back from our busy lives, do a bit of blue-sky thinking and plan how to grow our wealth – and a great approach that has helped me to make my own financial and career-related decisions over the last ten years has been a personal balance sheet.

How to use a personal balance sheet

Using the four sections of the personal balance sheet as a guideline, you can compile all the necessary information to calculate your net worth, understand the totality of your debts and determine whether you are spending more than you earn or putting enough money aside into savings or investments.

Personal balance sheet

Perhaps the easiest way to do this exercise is to start with a sheet of plain paper (or a spreadsheet if you prefer) and run through the four sections listing your:

  • Tangible assets
  • Intangible assets
  • Liabilities
  • Income Vs expenses

Make sure you include the value of each asset and liability, so that you can see your current net worth.

With all the information collected in one place, you can begin making short-term plans, such as:

  • Which debts should I tackle first?
  • Can I use any cash savings to pay-off my debts?
  • How can I raise extra money to pay down a debt or begin to buy more assets?

And plans for the longer-term:

  • What do I need to do to buy my own home?
  • Should I be diversifying into different types of assets to reduce risk?
  • How can I accumulate more assets for free or at least for as little money as possible?
  • What sort of training or qualifications should I get to enable me to earn more money in the future?

To help you get the most out of your personal balance sheet, here are some more details about the information you need to collect and how you can use it to inform your own choices:

Tangible assets

Although the term ‘asset’ can refer to all your possessions, for the purposes of the balance sheet I prefer to limit the assets I list to those that have a level of value and are unlikely to lose their value as time passes (such as a car that depreciates in value).

Expensive jewellery or valuable antiques are good examples of possessions that should (hopefully) only increase or at least maintain their value.

Some tangible assets fall under the loose category of ‘passive income’, which means unlike a job, you earn money without having to trade your time.

Cash savings will earn interest, stocks and shares will earn dividends and buy-to-let property will earn monthly rent payments.

Perhaps the ultimate position is to be the owner of one or more businesses that manage themselves and pay you a big fat dividend each year, whilst you sharpen your skills on the golf course!

As you can imagine, none of these assets are truly passive.  They all require effort to create and accumulate, and once acquired each will require some varying levels of effort to keep them running smoothly.

Intangible assets

Many businesses have intangible assets (such as brands or intellectual property) that are more valuable than their tangible assets.

The value of the Coca-Cola brand and their distribution processes far outweigh the combined value of plant and machinery owned by the drinks giant.

These intangible assets are what I would call ‘enablers’, by which they enable the organisation to generate revenue.

At a personal level, we also hold intangible assets that allow us to make money.  For example my dentist has the knowledge, skills and qualifications that enable him to charge me £50.00 for a ten-minute check-up!

Building up a series of enablers, such as personal reputation, a great network, experience, qualifications and expertise enables us to earn more money, which in turn can be used to pay-off our liabilities and build up our valuable tangible assets.

Accumulating assets

Ideally you’ll want to have a selection of assets that are either increasing in value or earning you an income on one side of the balance sheet, whilst on the other have zero liabilities.

The easiest way to start accumulating assets is through a savings account or stock market investments and it is really easy to set-up a simple system that will automatically transfer some of your income into a savings account or purchase a fixed amount of stock each month on your behalf.

Once this is set-up you can simply leave it running in the background whilst you go off to do more interesting things!

Collecting free assets

One idea I particularly like is the accumulation of free assets or at least paying as little as possible for them.

Obviously this should be done legitimately, so please don’t start stealing gold watches off unwitting passers-by!

It is probably easier to collect non-tangible assets for free (or very cheaply), such as getting your employer to pay for your training and qualifications or purchasing shares through an employee share-save scheme at a reduced rate.

In an entrepreneurial sense Rich Dad, Poor Dad talks about the concept of turning ‘trash into cash’.

Is there a by-product from a manufacturing process that could be obtained cheaply and used to create an expensive, luxury product?

Perhaps you can create intellectual property assets out of thin air by writing a best selling novel or guidebook?

Alternatively the property market thrives on people buying older, run-down properties and re-developing them into desirable homes customers will pay a premium to live in.

I guess the principle is getting the best value for your money as possible, so timing the purchase of a buy-to-let property for when the market is cheap, is just as important as finding the right location.


Liabilities include credit card debt, short-term loans and hire purchase agreements and every time you borrow money, you create another liability for yourself.

Each liability will incur an on-going cost (interest) that you will need to pay until you have re-paid the debt in full and generally the interest rate will be far higher than any gains from saving or investing a similar amount of money.

Ideally you should do everything in your power to avoid getting into debt, with one or two exceptions.

Learning and skills

The first exception is borrowing money to pay for qualifications that will enable you to earn more money in the future a.k.a the student loan.

However I’ll qualify this with the reminder that not all qualifications are created equal – by any means.  Think very carefully about the earning potential of the education you are buying and whether it makes financial sense.

Also in the guise of acquiring assets as cheaply as possible – are there any ways of acquiring the same or a similar qualification cheaper?

Doing the course part-time whilst you are working is one option or seeing if you can get sponsorship from your employer is another.  Living at home with your parents whilst you study is a third.


Mortgages provide us with the leverage to buy our own homes – the number one financial goal for most people – and are often regarded as being a ‘good debt’.

You can also use mortgages to fund the purchase of buy-to-let properties, which will provide a solid future income.

Affordability is the key issue to think about when taking out a mortgage.  Can you afford the repayments?  Can you afford all the other costs of living after you have made the monthly mortgage repayment?

Essentially you need to be able to live with the mortgage without having to fall back on short-term borrowing, so a really good understanding of your financial position is required before you take out a mortgage.

Income Vs expenses

Using a budget you can work out your monthly income (after tax) and your monthly expenditure.

If your budget shows you are spending more than you earn, then you need to do something about cutting back your expenses and earning more income fast.

Even if you are earning more than you spend, you should still look to minimise expenditure and maximise income as much as possible.

Consider the difference between spending and earning as your profit margin.  The more profit you earn, the more assets you can buy and the faster you can build up your passive money-making machine.

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