John and Nancy Roberts are not sleeping very well these days. Their new baby, Christopher, may be the primary reason just because he has not yet learned that nights are for sleeping. However, John and Nancy have also recently realized that they have no idea how to go about saving for Christopher’s college education, and this concerns them. Not only that, but since Nancy decided to stay home with little Chris, she is worried about meeting expenses and bills if anything were to happen to John. John, too, has been thinking about his income. What will happen to the family if for some reason he no longer received a regular paycheck?

Sue Parsons, on the other hand, has been sleeping very well indeed. Sue has just received a sizable inheritance. While saddened by the underlying event, Sue is excited about the fact that she now has a significant amount in the bank. However, when Sue has her taxes prepared next year she may not be sleeping quite so well once she realizes that every penny of the inheritance is sitting in a taxable certificate of deposit. Sue also wonders if all of her inheritance should be in a CD, or if there might be other investments she should be considering.

Beth and Bill Bennett wonder what they should do. Beth, a public school teacher, has been offered an early retirement package, and feels she cannot afford to pass it up. She will receive a large lump-sum payout and continue to receive 70% of her current salary, indexed for inflation, for life. Beth and Bill know they need advice, but wonder to whom they should speak about this. With the numerous financial scandals of recent years in mind, Beth and Bill wonder who can they trust to give them ethical advice and competent assistance.

Each of the vignettes above illustrates the importance of qualified and ethical financial planning. They also give some insight into the nature and variety of problems that can be dealt with through the financial planning process. The intent of personal financial planning is to help provide clear focus of an individual’s financial goals and to use a variety of methods to achieve them. Objectives can be met by implementing the optimal mix of cash and debt management, savings plans, insurance coverages and other risk management techniques, investment vehicles, tax strategies, employment benefits, retirement plans, and estate planning techniques.

This module focuses on the six steps of the personal financial planning process:

  1. establishing and defining the relationship with the client;
  2. gathering client data, including goals;
  3. analyzing and evaluating the client’s financial status;
  4. developing and presenting financial planning recommendations and/or alternatives;
  5. implementing the financial planning recommendations; and
  6. monitoring the financial planning recommendations.

In addition to these six steps, this module also explores basic knowledge necessary for appropriate analysis of a person’s financial situation and development of recommendations. Finally, legal and ethical concerns will also be considered.

About the Author

Michael Angell, CFP®, EA is an associate professor at the College for Financial Planning. He obtained his bachelor’s degree in mathematics at Creighton University. His 20+ years of work experience includes banking, insurance, investments, retirement, and estate planning. In addition to his responsibilities at the College, Michael also serves as a private client services advisor with an independent investment firm and is also a federally licensed tax practitioner with a nationally recognized company. You can contact him at michael.angell@cffp.edu.

Complexity Level: Overview