We conduct an audit of assets and liabilities
What will you learn?
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What is personal capital
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How to Build a Personal Balance
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How to Increase The Return on Assets and Reduce the Cost of Loans
To begin with, we will define the basic concepts, which will be discussed further.
Assets are the value of the property you own, which include:
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real estate;
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movable property (cars, antiques, expensive equipment, etc.);
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cash and cash equivalents (cash, bank account balances, deposits);
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Investment.
Liabilities are all the debts you have. Obligations include:
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mortgage;
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credit card debt;
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consumer credit;
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installments;
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microfinance loan.
These definitions of assets and liabilities are classic. However, there are alternative definitions of these concepts.
For example, the famous American entrepreneur, as well as the author of the bestseller "Rich Dad, Poor Dad" Robert Kiyosaki refers to assets only that which brings income, everything else is liabilities.
In this definition, the apartment in which you live (i.e. do not rent) or a personal car will be a liability.
Which of the following applies to assets?
The amount of personal capital is the difference between the value of assets and the amount of liabilities, which makes it possible to understand the financial position and determine the amount of accumulated capital.
If the amount of personal capital is negative, then a person owes more than he has. In this case, he is considered insolvent.
Capital = assets - liabilities.
How to Build a Personal Balance
Knowing what assets and liabilities are, you can start auditing your balance sheet. To do this, in practice, an analogue of the organization's balance sheet is used, in which the assets of the organization and its value are recorded on the left, and liabilities and the amount of assets minus liabilities are recorded on the right.
Personal balance table
Note that the cost of a mortgage is not just the amount of the loan that the bank gave you to buy an apartment, but the total amount of debt (loan amount + overpayment) that you will pay for the entire term of the mortgage. Similarly with other types of loans.
Dividing assets and liabilities into categories is not necessary, but it simplifies the analysis of your balance sheet.
Assets and liabilities are usually divided according to the degree of liquidity (the ability of an asset to be converted into money). The most liquid assets are cash, bank account balances, short-term deposits and securities with a maturity of up to one year. The most illiquid asset, as a rule, is real estate, art, antiques: it can take years to sell them at a good price.
Specify the least liquid asset
To determine the current value of assets, you can use popular real estate marketplaces (CYAN, Avito Real Estate, Domclick), as well as sites for the sale of movable property: for cars - Avto.ru, for other things - Avito or Yula.
Assessment of the effectiveness of assets and liabilities
Regardless of whether your capital is positive or negative, it makes sense to analyze all assets and liabilities for their effectiveness. To do this, we transform the balance into a single list.
List of assets and liabilities
Take a critical look at your list. Are all assets being used efficiently? Can you increase the return on assets or reduce the interest payments on existing liabilities?
To make it easier to answer, we recommend comparing interest rates on loans and deposits on aggregator sites.
You may be able to refinance your mortgage if the market has a lower interest rate right now.
If you have multiple credit cards on which you pay a very high interest, consider refinancing credit cards to combine all the loans into one pool, reduce the interest rate and the amount of overpayments.
Also pay attention to assets that don't generate income: Can you fix that? No one is saying that you need to give up the only apartment and rent it out. But perhaps you have never been to the existing plot that you inherited? You should carefully analyze the prospects and effectiveness of all your investments.
How to improve the return on assets?
How can you increase the return on assets?
Asset Analysis Diagram
You'll be able to track whether you're moving in the right direction, whether capital is increasing over time, and whether asset performance is improving.
If now your capital is negative, then this is a reason to concentrate on reducing liabilities.
Analysis of personal capital allows:
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understand financial stability;
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make smarter financial decisions;
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identify inefficient assets;
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monitor the dynamics of well-being.
Briefly about the main thing
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The amount of personal capital is the difference between the value of assets and the size of liabilities. Assets are what you own, that is, your property. Commitments are all you owe someone.
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Assets should be analyzed for the possibility of maximizing their efficiency, and liabilities for the possibility of minimizing costs.
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