O'Reilly logo

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Essentials of Personal Financial Planning

Book Description

This book takes a comprehensive and integrated approach to personal financial planning for accounting students, allowing them to view the personal financial planning profession through the lens of a CPA – with integrity and objectivity. It is part of a turnkey curriculum that centers on a single graduate-level course systematically introducing the essentials of all the major topics of personal financial planning (estate, retirement, investments, insurance, and tax), showing their interconnectivity and professional opportunities. Students will be able to apply the knowledge and skills gained from this course to have an immediate and long-term positive impact for themselves and for the clients they will serve.

Table of Contents

  1. Introduction
  2. Chapter 1: Personal Financial Planning
    1. Introduction
    2. Phases of the Personal Financial Planning Engagement
      1. Engage
      2. Discover
      3. Analyze
      4. Recommend
      5. Expanded or Additional Engagements
    3. Behavioral and Psychological Methods of Building Client Rapport
      1. Active Listening
      2. Behavioral Biases and Heuristics
      3. Socratic Questioning
    4. Application of Behavioral Techniques to Client Relationships
    5. Gathering Data: Quantitative Versus Qualitative Data
      1. Quantitative Data
      2. Qualitative Data
      3. Risk Tolerance
    6. Life Planning and the Personal Financial Planning Process
    7. Chapter Review
  3. Chapter 2: The Statement on Standards in Personal Financial Planning Services No. 1
    1. Introduction
    2. The Pathway to Standards in PFP
      1. A Timeline of Personal Financial Planning in the United States
    3. Statement on Standards in Personal Financial Planning Services
      1. Personal Financial Planning Services
    4. Applicability
      1. Requirements of the Member
    5. Steps in a Personal Financial Planning Engagement
      1. Planning the PFP Engagement
      2. Selecting Other Service Providers
      3. Obtaining and Analyzing Information
      4. Developing and Communicating PFP Recommendations
    6. Other Types of Personal Financial Planning Engagements
      1. Implementation Engagement
      2. Monitoring Engagement
      3. Updating Engagement
    7. Chapter Review
  4. Chapter 3: Time Value of Money Concepts
    1. Introduction
    2. Tools for Calculating Time Value of Money
      1. Efficiency
      2. Establishing Realistic Expectations
    3. Fundamental Time Value of Money Functions
      1. Present Value
      2. Periods (n)
      3. Interest (i)
      4. Payment (PMT)
      5. Future Value (FV)
      6. Mode
      7. Examples
    4. Unequal Cash Flows
      1. Present Value
      2. Net Present Value
      3. Internal Rate of Return
      4. Serial Payments
      5. Examples
    5. Chapter Review
  5. Chapter 4: Fundamentals of Personal Financial Planning
    1. Introduction
    2. Personal Financial Planning Assumptions
    3. Personal Statement of Financial Position
    4. Spending Plan
    5. Financial Ratios
      1. Debt-to-Income Ratio
      2. PITI Ratio
      3. Savings Ratio
    6. Emergency Fund
    7. Financing Strategies
      1. Automobile Purchase or Lease
      2. Home: Purchase or Rent
    8. Bankruptcy
    9. Consumer Protection Issues
      1. The Fair Credit Reporting Act and Identity Theft
      2. Electronic Fund Transfer Act
      3. Fair Credit Reporting Laws
    10. Chapter Review
  6. Chapter 5: Estate Planning Basics
    1. Introduction
    2. Fundamentals of Estate Planning
      1. The Unified Tax System
      2. Generation Skipping Transfer Tax
      3. Credits, Deductions, and Other Tax Reductions
      4. Step Up In Basis
      5. Probate and Intestacy
      6. Expatriate Issues
    3. Impact of Property Ownership and Beneficiary Designations
      1. Community Property and Common Law
    4. Basic Estate Planning
      1. Data Gathering
      2. State Estate Tax
      3. Estate Tax Filing Requirements
      4. Gross Estate
      5. Adjusted Gross Estate
      6. Prior Transfer Credit
      7. Sources for Estate Liquidity
    5. Estate Planning Documents
      1. Wills
      2. Powers of Attorney
      3. Advance Medical Directives
      4. Beneficiary Forms
      5. Trusts
      6. Crummey Power
      7. Testamentary Trust
    6. Powers of Appointment
    7. Chapter Review
  7. Chapter 6: Charitable Gift Planning Basics
    1. Introduction
    2. What is a Charity?
    3. Types of Gifts
      1. Real Estate
      2. Personal Property
    4. Charitable Trusts and Planning Tools
      1. Charitable Lead Trust
      2. Charitable Remainder Trust
      3. Wealth Replacement Trust
      4. Pooled Income Fund
    5. Other Charitable Vehicles
    6. Taxation and Income Tax Planning
      1. Application of Limitations
      2. Carryovers of Excess Charitable Contributions
      3. Tax Impacts of Transfers
      4. Qualified Charitable Distributions
    7. Chapter Review
  8. Chapter 7: Principles of Risk and Insurance
    1. Introduction
    2. Risk Management Concepts
      1. Risk
      2. Peril and Hazard
      3. The Law of Large Numbers and Adverse Selection
      4. Self-Insurance
    3. Managing Risk
      1. Controlling Risk
      2. Financing Risk
      3. The Risk Management Process
      4. Risk Management Matrix
    4. Insurance Policy and Company Selection
    5. Types of Insurance
      1. Life/Health/Disability
      2. Property Risk and Insurance
    6. Legal Aspects of Insurance
      1. Offer and Acceptance
      2. Adequate Considerations
      3. Competent Parties
      4. Legal Purpose
      5. Legal Form
    7. Chapter Review
  9. Chapter 8: Insurance Planning Basics, Part 1
    1. Introduction
    2. Life Insurance
    3. Life Insurance Types
      1. Term Life Insurance
      2. Permanent Life Insurance
    4. Additional Life Insurance Policy Considerations
      1. Contractual Provisions of Life Insurance
      2. Riders
      3. Nonforfeiture Options
      4. Settlement Options
      5. Advanced Death Benefits
    5. Health Insurance
      1. Hospital, Surgical, and Physician’s Expense Insurance Plans
      2. Managed Care Plans
      3. Medicare (Parts A, B and D)
      4. Medicare Supplement Insurance (MEDIGAP)
      5. Medicare Advantage Plan (Part C)
      6. Medicaid
      7. Tricare
    6. Health Savings Accounts and Other Tax-Favored Health Plans
      1. Health Savings Accounts (HSA)
      2. Health Flexible Spending Arrangements (FSA)
      3. Health Reimbursement Arrangements (HRA)
    7. Chapter Review
  10. Chapter 9: Insurance Planning Basics, Part II
    1. Introduction
    2. Annuities
      1. Deferred Fixed, Variable, or Equity-Indexed Annuity
      2. Taxation
      3. Payment Options
    3. Disability Insurance
      1. Own Occupation Versus any Occupation
      2. Continuance Provisions
      3. Additional Provisions
    4. Long-term Care Insurance
      1. Qualified Care
      2. Taxation and Income Tax Planning
      3. Medicare Limitations
    5. Property and Casualty Insurance
      1. Homeowners Insurance
      2. Personal Auto Insurance
      3. Umbrella Liability Insurance
    6. Chapter Review
  11. Chapter 10: Investment Basics
    1. Introduction
    2. Securities Defined
    3. The Role of the Personal Financial Planner and Compensation
    4. Business Models
      1. Broker-Dealer Model
      2. Registered Investment Adviser (RIA) Model
      3. Dual-License Model
      4. CPA Disclosure Requirements
    5. The Investment Planning Process
    6. The Planning Phase
      1. Determine and Prioritize Client’s Specific Financial Goals
      2. Client’s Financial Condition
      3. Assessing Risk Tolerance
      4. Identify Unique Needs
      5. Identify Potential Client Investment Constraints
    7. Chapter Review
  12. Chapter 11: Investment Planning
    1. Introduction
    2. Capital Markets
    3. Types of Investment Vehicles
      1. Cash and Cash Equivalents
      2. Guaranteed Investment Contract
      3. Bond
      4. Stock
      5. Mutual Fund
      6. Exchange Traded Fund
      7. Real Estate
      8. Alternative Investments
    4. Investment Valuation
    5. Investment Strategies
      1. Market Timing
      2. Dollar-Cost Averaging
      3. Systematic Withdrawal Plan
      4. Bond Ladder
      5. Option Strategies
      6. Short Selling
      7. Margin Account
    6. Chapter Review
  13. Chapter 12: Planning for Retirement and Financial Independence
    1. Introduction
    2. PFP Assumptions for Financial Independence
      1. Inflation
      2. Life Expectancy
      3. Financial Independence Spending Plan
      4. Modeling Techniques
      5. Investment Returns
    3. Income Sources
    4. Time Value of Money and Inflation-Adjusted Return
      1. Mini Case Study
    5. Chapter Review
  14. Chapter 13: Planning Vehicles for Retirement
    1. Introduction
    2. Social Security Benefits
      1. Eligibility and Benefits
      2. Spousal Benefits
      3. Working After Retirement
      4. Taxation of Benefits
      5. Government Pension Offset
      6. Railroad Employees
    3. Employer-Sponsored Retirement Plans
      1. ERISA: Overview of Qualified Plan Rules
      2. Vesting
      3. Defined Benefit Plans
      4. Defined Contribution Plans
      5. Other Retirement Plans
      6. Additional Employer-Sponsored Retirement Plans
    4. Individual Retirement Accounts
      1. Spousal IRA
      2. Nondeductible IRA
      3. Roth IRA
      4. Roth IRA Conversions
    5. Chapter Review
  15. Chapter 14: Elder Planning Basics
    1. Introduction
    2. Nonfinancial Factors
      1. Types of Care
      2. Communicating with Cognitively Impaired Clients
      3. Incapacity and Incompetency
    3. Financial Decisions
      1. Financial Fraud
      2. Housing Decisions
    4. Health Care Options
      1. Government Programs
      2. Veterans Benefits
    5. Funding Sources for Elder Care
    6. Taxation and Income Tax Planning
      1. Filing a Tax Return
      2. Medical Expenses
      3. Home Care
      4. Long-Term Care
    7. Integration and Application of Elder Planning with Personal Financial Planning
      1. Estate Planning
      2. Advance Directives
      3. Health Care Proxy
      4. Power of Attorney and Durable Power of Attorney
    8. Chapter Review
  16. Chapter 15: Education Planning Basics
    1. Introduction
    2. Funding Methods
      1. Qualified Tuition Programs (529 Plans)
      2. Coverdell Education Savings Accounts
      3. Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA)
      4. Education Savings Bond Program
    3. Financial Aid
      1. Federal Student Aid
      2. Scholarships
      3. Loans
    4. Taxation and Income Tax Planning
      1. Taxation of Scholarships and Grants
      2. Credits
      3. Deductions
      4. Educational Assistance Program
    5. Integratuion and Application of Education Planning with PFP
      1. Risk Management and Insurance Planning
      2. Retirement Planning
      3. Estate Planning
      4. Investment Planning
    6. Education Needs Analysis Case Study
      1. Step One—Calculate the Future Value of One-Third of the Cost of College
      2. Step Two—Calculate the Present Value of the Serial Payments Need to Fund College
      3. Step Three—Calculate the Total Amount Needed
    7. Chapter Review
  17. Chapter 16: Applications in Estate Planning
    1. Introduction
    2. Trusts Revisited
      1. Credit Shelter Trust
      2. Marital Trust
      3. Qualified Terminable Interest Property Trust
      4. Disclaimer Trust
      5. Additional Trust Types
    3. Gifting Strategies
      1. Interest-Free Loans
      2. Installment Sales to Family Members
      3. Self-Cancelling Installment Note
    4. Additional Tax Issues
      1. Generation-Skipping Transfer (GST) Tax
      2. Income in Respect of the Decedent
    5. Closely Held Business Issues
      1. Special Valuation Under Section 2032(A) Farm and Real Estate
      2. Section 6166 Deferrals of Estate Tax
      3. Buy-Sell Agreement
      4. Section 303 Redemption
    6. Other Estate Planning Considerations
      1. Qualified Domestic Trust
      2. Planning for Blended Family Relationships
      3. Cohabitation
    7. Integration and Application of Estate Planning with PFP
      1. Life Insurance
      2. Retirement Planning
      3. Private Foundation
    8. Chapter Review
  18. Chapter 17: Applications in Risk Management
    1. Introduction
    2. Life Insurance Applications
      1. Life Insurance Illustrations
      2. Settlements
      3. Modified Endowment Contracts
      4. Transfer for Value Rules, Section 101(A)(2)
      5. Section 1035 Exchanges
      6. Impact on Other Aspects of Personal Financial Planning
    3. Annuities
    4. Medical Insurance
      1. Taxation and Income Tax Planning
      2. Affordable Care Act
      3. Healthcare Marketplace—Individual and Small Employer
      4. Premium Tax Credits
      5. Individual Shared Responsibility Provision
      6. Employer Shared Responsibility Provision
    5. Disability Insurance
    6. Long-term Care Insurance
      1. Taxation and Income Tax Planning
      2. Retaining the Risk—The Self-Insurance Option
      3. Integration and Application of Long-Term Care Insurance with Personal Financial Planning
    7. Property and Casualty Insurance
      1. Additional Insured Endorsement
      2. Taxation and Income Tax Planning
      3. Business Owners Insurance
    8. Chapter Review
  19. Chapter 18: Applications in Investment Planning
    1. Introduction
    2. Perform Financial Analysis
      1. Investment Risk
      2. Taxation and Income Tax Planning
      3. Assess Impact of Constraints
      4. Asset Class Allocation Strategy
    3. The Investment Policy Statement
    4. The Monitoring and Updating Phase
      1. Measuring Performance and Goal Achievement
      2. Reevaluation of the IPS
    5. Integration and Application of Investment Planning with PFP
      1. Risk Management and Insurance Planning
      2. Planning for Financial Independence
      3. Estate Planning
      4. Charitable Planning
    6. Chapter Review
  20. Chapter 19: Applications in Planning for Retirement
    1. Introduction
    2. Employer Considerations
    3. Contribution Limits
      1. Defined Benefit Plans
      2. Defined Contribution Plans
    4. Retirement Distribution Optimization Planning (Income Management)
      1. Avoiding Early Withdrawal Penalties
      2. Employer Stock and Net Unrealized Appreciation (NUA)
      3. Required Beginning Dates and Minimum Distributions
      4. Annuity Options
      5. Lump-Sum Distributions
      6. Qualified Domestic Relations Order
    5. Income Tax Issues
      1. Incorporating Tax Rate Diversification in the Choice of Retirement Savings Vehicles
      2. Impact of Tax-Loss Harvesting in the Retirement Planning Process
    6. Investment Management During Retirement
      1. Withdrawal Rates
      2. Asset Allocation
    7. Integration and Application of Retirement Planning in the PFP Process
      1. Life Expectancy
      2. Asset Protection
    8. Chapter Review
  21. Chapter 20: Applications in Employee Benefits Planning
    1. Introduction
    2. Group Insurance Benefits
      1. Group Disability Insurance
      2. Group Life Insurance
      3. Group Medical Insurance
      4. Section 125 Cafeteria Plans
      5. Group Long-Term Care Insurance
      6. Group Dental Insurance
      7. Group Vision Insurance
    3. Other Employee Benefits
      1. Fringe Benefits
      2. Adoption Assistance Program
      3. De Minimis Benefits
      4. Employee Achievement Awards
      5. Educational Assistance Program
      6. Prepaid Legal Services
      7. Retirement Planning Services
      8. Job Placement or Outplacement Services
      9. Meals
      10. On-Premise Athletic Facilities
      11. Qualified Moving Expenses
    4. Chapter Review
  22. Chapter 21: Applications in Executive Compensation Planning
    1. Introduction
    2. Executive Compensation Agreements
      1. Employment Agreement
      2. Severance Agreement
      3. Noncompete Agreement
      4. Other Arrangements
    3. Nonqualified Deferred Compensation
    4. Funded and Unfunded Plans
    5. Types of Nonqualified Deferred Compensation Plans
    6. Equity Compensation Plans
      1. Restricted Stock Plan
      2. Phantom Stock Plan
      3. Qualified Employee Stock Purchase Plan
      4. Incentive Stock Option and Nonqualified Stock Option
    7. Stock Appreciation Right
    8. Section 83(B) Election
    9. Top-Hat Plan
    10. Chapter Review
  23. Chapter 22: Applications in Personal Financial Planning in Special Circumstances
    1. Introduction
    2. Housing
      1. Sale of Principal Residence
      2. Vacation Home
      3. Household Employees
    3. Closely Held Business Basics
      1. Entity Selection Process
      2. Application of Trusts
      3. Employing Spouse or Children and FICA Taxes
      4. Business Applications of Insurance
    4. Divorce
      1. Income Tax Considerations
      2. Statement on Standards in Personal Financial Planning and Conflicts of Interest
    5. Chapter Review
  24. Chapter 23: Delivery Models and Regulatory Issues
    1. Introduction
    2. Regulatory Landscape
      1. Regulatory Bodies
      2. Significant Federal Legislation
      3. Significant State Legislation
    3. Financial Services Industry Regulations and Requirements
      1. Securities Licensing
      2. Insurance Licensing
      3. Regulatory Investment Reporting
    4. Delivery Platforms (Business Models)
      1. Investment Advisers
      2. Registered Investment Adviser
      3. Broker-Dealer
      4. Insurance Company
      5. Trust Company
    5. Chapter Review