DEFINITION OF PERSONAL FINANCIAL PLANNING

Personal financial planning is the process of managing your money to achieve

personal economic satisfaction. This planning process allows you to control your
financial situation. Every person, family, or household has a unique financial position,
and any financial activity, therefore, must also be carefully planned to meet specific
needs and goals.
Personal finance is the financial management which an individual or a family unit
performs to budget, save, and spend monetary resources over time, taking into account
various financial risks and future life events. [1] When planning personal finances, the
individual would consider the suitability to his or her needs of a range of banking
products (checking, savings accounts, credit cards and consumer loans) or investment
private equity, (stock market, bonds, mutual funds) and insurance (life insurance, health
insurance, disability insurance) products or participation and monitoring of individual- or
employer-sponsored retirement plans, social security benefits, and income
tax management.
Financial Planning is the process of estimating the capital required and determining its
competition. It is the process of framing financial policies in relation to procurement,
investment and administration of funds of an enterprise.
THE SUBJECT AREAS OF PERSONAL FINANCIAL PLANNING
The 6 Steps of Financial Planning
You can recall the six steps by memorizing the acronym EGADIM, the letters that begin
the first word of each step:
Establish and define the relationship with the client.

Collect the clients information.

Analyze and assess the clients financial status.

Develop the financial planning recommendations and present them to the client.

Implement the financial planning recommendations.

Review the clients situation.

Step 1: Establish and define the relationship with the client.

The financial planning professional informs the client about the financial planning
process, the services the financial planning professional offers, and the financial
planning professionals competencies and experience. The financial planning
professional and the client determine whether the services offered by the financial
planning professional and his or her competencies meet the needs of the client. The
financial planning professional considers his or her skills, knowledge and experience in
providing the services requested or likely to be required by the client. The financial
planning professional determines if he or she has, and discloses, any conflict(s) of
interest. The financial planning professional and the client agree on the services to be
provided. The financial planning professional describes, in writing, the scope of the
engagement before any financial planning is provided, including details about: the
responsibilities of each party (including third parties); the terms of the engagement; and
compensation and conflict(s) of interest of the financial planning professional. The
scope of the engagement is set out in writing in a formal document signed by both
parties or formally accepted by the client and includes a process for terminating the
engagement.
Step 2: Collect the clients information.
The financial planning professional and the client identify the clients personal and
financial objectives, needs and priorities that are relevant to the scope of the
engagement before making and/or implementing any recommendations. The financial
planning professional collects sufficient quantitative and qualitative information and
documents about the client relevant to the scope of the engagement before making
and/or implementing any recommendations.
Step 3: Analyze and assess the clients financial status.
The financial planning professional analyzes the clients information, subject to the
scope of the engagement, to gain an understanding of the clients financial situation.
The financial planning professional assesses the strengths and weaknesses of the
clients current financial situation and compares them to the clients objectives, needs
and priorities.
Step 4: Develop the financial planning recommendations and present them to the
client.
The financial planning professional considers one or more strategies relevant to the
clients current situation that could reasonably meet the clients objectives, needs and
priorities; develops the financial planning recommendations based on the selected
strategies to reasonably meet the clients confirmed objectives, needs and priorities;
and presents the financial planning recommendations and the supporting rationale in a
way that allows the client to make an informed decision.

Step 5: Implement the financial planning recommendations.

The financial planning professional and the client agree on implementation
responsibilities that are consistent with the scope of the engagement, the clients
acceptance of the financial planning recommendations, and the financial planning
professionals ability to implement the financial planning recommendations. Based on
the scope of the engagement, the financial planning professional identifies and presents
appropriate product(s) and service(s) that are consistent with the financial planning
recommendations accepted by the client.
Step 6: Review the clients situation.
The financial planning professional and client mutually define and agree on terms for
reviewing and reevaluating the clients situation, including goals, risk profile, lifestyle
and other relevant changes. If conducting a review, the financial planning professional
and the client review the clients situation to assess progress toward achievement of the
objectives of the financial planning recommendations, determine if the
recommendations are still appropriate, and confirm any revisions mutually considered
necessary.
THE SUBJECT AREAS OF PERSONAL FINANCIAL PLANNING
In practice, the comprehensive financial planning process and the resulting written
report typically, address seven elements of the client's situation. These are:
Subject
Financial Management
Risk Management
Tax Planning
Educational Planning
Retirement Planning
Estate Planning
Asset Management

TOPIC 2
ESTABLISHING THE ENGAGEMENT