Introduction | III. Internal Environment Analysis

Taking things on a deeper level, the internal environment creates the foundation needed for a successful financial plan.

Importance of Communication

A plan is only as good as it is executed. Without a strong line of communication between a planner and a client, the purpose of the plan can be lost in translation. Good communication involves an understanding on both sides as to what is to be done and how it should be done. Also an understanding of each other's role is key to having less conflicts in communication.

Your financial planner should be the person to guide you financially, but you should be the person indicating where you want to go financially. By clearing defining your financial goals and objectives with your advisor, the advisor can then draft a plan which you both should provide meaningful input towards the final draft.

Learning Objectives:

  • Identify professional liability risk affecting the financial planner
  • List the four phases of thinking through which a client often progresses in the financial planning process
  • Identify professional liability risk affecting the financial planner
  • List the four phases of thinking through which a client often progresses in the financial planning process
  • Describe the auditory learning style, the visual learning style, and the kinetic, or tactile, learning style by discussing how a client with each style prefers to learn
  • Identify the five categories that make up a client's internal environment.
  • List the factors that make up life cycle positioning
  • Name the life cycle phases through which most financial planning clients eventually progress.
  • Explain how a client's tolerance for risk; savings and consumption habits; views about employment, retirement, and leisure time; and attitudes on government (especially taxation) affect the setting of her financial goals.
  • Identify special needs that may influence the successful development of a client's financial plan.
  • Identify the financial statements and other information needed to develop an accurate assessment of a client's financial position
  • Explain how a client's subjective perception of her financial position affects the objective reality of the financial position provided by a financial planner.

Personal Financial Statements (Preparation and Analysis)

The personal financial statements are the foundation sections to a financial plan. Without an accurate statement, the plans calculations will not be a great estimate. Typically there are two personal financial statements: the personal balance sheet (also known as the statement of financial position) and the personal cash flow statement.

Establishing Financial Direction

In order to establish financial direction, a budget must be created to forge a path to where you want to go. In order to prepare a budget, you must weigh the following: the income bringing money in, the spending bringing money out, and the plan for saving and investing.

Guidelines to follow when preparing a budget are:

  • Put in the fixed expenses first - This gets the important expenses out of the way
  • Have savings in the spending budget, no matter what!
  • Prioritize the expenses that may fluctuate. Put food, clothing, and commute expenses first; while having entertainment or travel on the flexible end.
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