Financial Planning Talk (2): Some tools to help assessing our financial status

Earlier, I have mentioned that the first step in personal financial planning is assessing our current financial status. This step is very essential as we need to know how much our net income is, how much assets we have and how much debt we have. We should take all these into consideration before we choose the most suitable investment strategy for our financial plan.

Each of us may have our own way to assess our current financial status, but for those who still have no idea how to know about our financial status, this is the guide for us to assess our financial status in general. For those who are very good in accounting, they can build their own balance sheet and income statement. These two tables can give them a clear picture how much assets, debt and cash they have. Normally balance sheet will include assets (such as property, equity, bank deposits, bond, etc), and debt (such as housing loan, education loan, personal loan, credit card debt, etc). Income statement should include your income and expenditure, and this can show you how much net income you have every month.

However, most of us have no idea about proper accounting, so we can do it in another way. We can list down the monthly income (such as salary, allowance, side income, etc), and monthly expenditure (such as house installment/rent, car installment, daily life expenditure, etc). Then, we also list down the yearly income (such as year end bonus, equity dividend, bond/deposit interest, etc) and yearly expenditure (such as insurance premium, roadtax, income tax, etc). From these two listings, we can calculate our monthly net income and yearly net income.

Beside, we also need to list down our current assets and debts. List down assets (such as properties (own use/rental), unit trust funds, bank deposits (saving, current, and fixed deposits), stocks, gold, etc), and debts (such as housing loan, car loan, credit card debt, personal loan, etc). At last, we also list down the insurance that we have and the sum-insured.

Here is the example of the lists: