Reviewing (Part 8 of 8)

Reviewing is like a medical health screening, personal financial statements need to be examined to diagnose the state of financial health.

Similar to analyzing a company, the personal financial statements to review are the balance sheet, income/cash flow statement and budget allocation.

Balance Sheet

It lists the assets and liabilities at a specific point in time.

The types of assets are:
1. Liquid (Cash, fixed deposits, money market, short term investments)
2. Investments (Shares, unit trusts, bonds)
3. Personal (Property, car)

Some assets may fall into more than 1 category, it depends on your intention of the item. For example, shares can also be liquid or a second property could be for investment.

Liabilities are mainly categorized as short term or long term.

Net Worth will be determined by Assets minus Liabilities.

Income/Cash Flow Statement

It illustrates the income versus expenses over a period of time, typically a year.

List all sources of income, like employment salary, rental, dividends, interest, CPF contributions, royalties, etc.

List all sources of expenditure, like taxes, mortgage, loans, insurance, living expenses, entertainment, purchases, etc.

Income minus expenses will arrive at a surplus or a deficit.

Budget Allocation

If there is a deficit on the income statement, budgeting is a key solution. Even for surpluses, having a proper budget prevents living too miserly.

Divide expenses into 3 categories:
1. Committed: Mortgage, loans and insurance premiums.
2. Essentials: Living expenses like food, clothing, transport, utilities.
3. Luxuries: Holidays, branded goods, latest gadgets.

Review the list and look into excessive spending areas and aim to reduce any debt if there is. There might be sacrifices to be made, but a balance needs to be strike to achieve the financial goals.

Subsequently, the spending patterns need to be monitored to ensure the budget is adhered to.

Financial Ratios

A quick way to look at the results of the financial statements generated above is to calculate the financial ratios.

1. Liquidity ratio, number of months of emergency funds available: Liquid assets / Monthly expenses. (Should be between 3 - 6 months)
2. Debt to asset ratio, the amount of assets financed by debt: Liabilities / Assets. (Should be less than 50%)
3. Debt service ratio, the amount of take home pay used to pay off loans: Annual loan payments / Annual income. (Should be less than 35%)
4. Savings ratio, amount of savings: Savings / Income. (Should be more than 10%)

The recommended level is only a guide and it varies depending on personal circumstances.


This closes the financial planning cycle loop and should be carried out at least once a year.

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