Personal Finance

4 Steps to Developing a Good Personal Financial Plan

Contrary to what most people think, financial planning is not just about buying an insurance policy or retirement annuity. While most of the financial advisory industry has been set up to primarily push insurance plans, annuity programs and mutual funds, they are just a small portion of a full financial plan.

To develop a good financial plan, there are four steps to take:

  1. Diagnose your current financial situation and financial health
  2. Determine if you are sufficiently covered in case of a mishap
  3. Set your financial goals
  4. Create an investment plan to achieve your financial goals

Let’s go through each step in more detail.

1. Diagnose Your Current Financial Situation


The first thing you need do is to construct your personal income statement and personal net worth statement. A personal income statement is basically an annual budget of your income and expenses. The net worth statement is similar to a company’s balance sheet where you record your assets and liabilities as well as your net worth. You can use spreadsheet software or a tool like DrWealth to create the statements.

Next, you need to determine your financial health. There are several Certified Financial Planning (CFP) standard calculations such as the liquidity ratio and debt servicing ratio which can be used to determine your financial health.

2. Determine if You’re Sufficiently Covered in Case of a Mishap


One of the worst things that could happen to a family is for the breadwinner to either pass away or suffer from a permanent disability. If you are the primary income earner, it is important to ensure that your family is protected in such an event. The best way to do this is through purchasing affordable term life insurance for the value that is required. A full needs analysis would be required to determine the amount of money required.

3. Set Your Financial Goals


Without a goal in mind, it is really difficult to plan your financials. So always start with a goal, such as the amount you need for retirement, university education for your children, etc. and work backwards to determine how much money you need to save. Assumptions would be required for inflation and your investment rate of return.

4. Create an Investment Plan to Achieve Your Financial Goals

Investment Allocation Graph & Calculator

Once you know your desired rate of return on investment and how long you need to invest for, it is time to create an investment plan to reach your goals. An ideal investment plan generally consists of a well-diversified portfolio of investment assets such as stocks and bonds.

Are You Already Doing This?

These four steps may sound simple enough but are you already doing this in your life? If not, then you need to start somewhere and these four steps will help get started in developing a financial plan for yourself.

Like Benjamin Franklin once said:

“If you fail to plan, you are planning to fail!”

Calvin Yeo

Calvin Yeo is the Managing Director of Doctor Wealth Pte Ltd (www.DrWealth.com) which is an online financial planning platform that aims to provide private bank standard financial plans at affordable prices. He is also a Chartered Financial Analyst (CFA) as well as Certified Financial Planner (CFP).


    1. Hi Daniel,

      Glad the article helped! 🙂 Yeah, sometimes we know that we need to do these things at the back of our minds, but we never get around to doing so!

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