Have you prepared your Economic Balance Sheet yet?

An Economic Balance Sheet(B/S) however, is more comprehensive statement depicting the overall financial situation of the individual/entity taking his/her holistic wealth into account.

Have you prepared  your Economic Balance Sheet yet? 

We all know what a Balance Sheet is. In simple terms it is a statement of assets and liabilities of a person, organisation or corporate. But does that depict a holistic picture? 

The biggest drawback of a traditional balance sheet is that it does not take into account Human Capital 

An Economic Balance Sheet(B/S) however, is more comprehensive statement depicting the overall financial situation of the individual/entity taking his/her holistic wealth. 

It is an extension of the traditional B/S taking into account human capital and pension wealth on one hand and extending liabilities  by including  consumption and wealth preservation and transfers  goals. 

Let us understand with a simple example, Ajay aged 30 is a salaried person. His present value of future salary and pension is Rs 140 lakh. He has a credit card loan of Rs 1 lakh, Car loan of Rs 5 lakh and a Housing Loan of Rs 30 lakhs. He owns an apartment worth Rs 50 lakh, Car of 7.5 lakh and Investments of Rs 10 lakh. Present value of his lifetime consumption is Rs 70 lakh. For simplicity purpose we assume that all assets and liabilities are stated at their present value 

With this information , let us prepare Ajay’s Economic Balance Sheet