In Depth: Step 1:

If you read my ‘Gin’s tips for writing a story’ then here’s a more in depth look at each step, if you wanted more detail.

HOW TO: STEP ONE:

New characters can be inspired by anything. You may include traits from a person you know, although don’t let this taint your general view of the character and make you feel pressurized to base the entire character on this person. They are your own creation and yours to decide on their personality.
When considering personalities, try not to be stereotypical or think ahead. For example, do not plan for one character to be “an enemy” but rather instead, let your practise plots reveal to you why certain characters disagree with your main character. If you assign a character a certain role this early in the stage, you may be open to thinking that they MUST behave a certain way, thus ending all further development.
Be accepting of flaws. No character is ever perfect, as is the same with people in real life. Truly put yourself in each and every characters’ states of mind to see how they would behave to certain scenarios. Never select what will be a character’s “bad traits” as these sometimes do not always lead to negative outcomes. Always imagine through each and every situation before creating your own mental image of the character’s mind.
When choosing a name, try to avoid searching for name meanings to give your character a name which stands for a particular trait of theirs as this is rarely the case with real life. If you cannot think of a name at first, leave this until you have conjured up the family background in Step 2 and then you can imagine how the background and parents of the characters chose their name.
With all of this, the development stage comes later. Every time you learn something new, you can add it to your description of them, whether this is favourite food, place, etc. This is only for a brief outline to help you further develop. Never rush.
Do not worry about appearance either. By the time you have a good thorough outline of the character and their mental state, you can then conjure up how they may look although this is never too important and can always change later if you’re not happy. I personally find that if my character development is far enough, the appearance of the character just comes naturally.