Solution Manual for Personal Financial Planning15th
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Edition by Randy Billingsley, Lawrence J. Gitman, Mi
j j j j j j j
chael D. Joehnk
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,SOLUTION MANUAL FOR j j
Personal Financial Planning 15th Edition by Randy Billingsley, La
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wrence J. Gitman, Michael D. Joehnk
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Understanding the Financial j j j
Planning ProcessChapter 1 j j j
HowjWilljThisjAffectjMe?
Thejheartjofjfinancialjplanningjisjmakingjsurejyourjvaluesjlinejupjwithjhowjyoujspendjandjsave.jThat
jmeansjknowingjwherejyoujarejfinanciallyjandjplanningjonjhowjtojgetjwherejyoujwantjtojbejinjthejf
uturejnojmatterjwhatjlifejthrowsjatjyou.jForjexample,jhowjshouldjyourjplanjhandlejthejprojectionjt
hatjSocialjSecurityjcostsjmayjexceedjrevenuesjbyj2035?jAndjwhatjifjthejgovernmentjdecidesjtojrais
ejtaxjratesjtojhelpjcoverjthejfederaljdeficit?jAnjinformedjfinancialjplanjshouldjreflectj suchjuncertai
ntiesjandj more.
Thisjchapterjoverviewsjthejfinancialjplanningjprocessjandjexplainsjitsjcontext.jTopicsjincludejho
wjfinancialjplansjchangejtojaccommodatejyourjcurrentjstagejinjlifejandjthejrolejthatjfinancialjplan
nersjcanjplayjinjhelpingjyoujachievejyourjobjectives.jAfterjreadingjthisjchapterjyoujwilljhavejajgoo
djperspectivejonjhowjtojorganizej yourjoveralljpersonaljfinancialjplan.
LEARNING GOALS j
LG1jIdentifyjthejbenefitsjofjusingjpersonaljfinancialjplanningjtechniquesjtojmanagejyourjfinances
.
KeyjconceptjinjthisjsectionjisjthejplanningjmodeljasjdisplayedjinjExhibitj1.1.jYourjstandardjofjlivin
gjisjgreatlyjimpactedjbyjyourjspendingjhabitsjandjyourjcommitmentjtojsaving.jYourjspendingjisjm
easuredjbyjyourjpropensityjtojconsume.jWealthjisjthejtotaljvaluejofjalljpropertyjyoujownjlessjthe
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hjthej money?j Writejdownjthreejwaysj youjwilljspendjorjusejthej money.
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anjreflectjonjthejanswers.jHopefully,jatjleastjajfewjwilljmentionjinvestingjevenjifjonlyj$10,000jofjth
ejamount.jUsejtheirjanswersjtojdiscussjtakingj carejofjcurrentj needsjversusjfuturejneeds.
Focusjonjtheirjpropensityjtojconsumejandjitsjimpactjonjaccumulatingjwealth.jPointjoutjthejF
inancialjPlanningjTip,j ―BejSMARTj injPlanningj YourjFinancialjGoals.‖
UsejExhibitj1.2jtojshowjhowjthejaveragejpersonjearnsjandjspendsjtheirjmoneyjandjExhibitj1.6jtojhel
pjthejstudentj identifyjwherejtheyjarej now.
LG2jDescribejthejpersonaljfinancialjplanningjprocessjandjdefinejyourjgoals.
Dwightj Eisenhower,jarmyj generaljandj president,j isjquotedjasjsayingj ―Plansjarejuseless;jPlanningjisj
priceless‖.jThejprocessjofjplanningjallowsjyoujtojfocusjonjthejissuesjthatjarejmostjimportantjandjt
oj bejreadyjwhenjthingsjchange.
Exhibitj1.3jlistsjthejSixjStepjFinancialjPlanningjProcess.jThejfirstjandjmostjimportantjisjdefiningjy
ourjfinancialjgoals.jExhibitj1.6jlistsjgoalsjbyjagejtojdemonstratejhowjgoalsjchangejoverjtime.jUse
jthejexamplesjinjExhibitj 1.5jtojaskjstudentsjifjthejassumptionsjarejrealistic.jYes,jthejanswerjisjinjth
ejexhibit,jbutjmanyjwilljnotjhavejreadjchapterjatjthisjpoint.jForjyourjuse,jthejassumptionsjare:
Assumptionj1:jSavingjajfewjthousandjdollarsjajyearjshouldjprovidejenoughjtojfundjmyjchild‘sjcoll
egejEducation.
Assumptionj2:jAnjemergencyjfundjlastingj3j monthsjshouldjbejadequate.
Assumptionj3:jIjwilljbejablejtojretirejatj65jandjshouldjhavejplentyjtojlivejonjinjretirement.jAss
umptionj4:jI‘mjrelyingjonjthejrulejofjthumbjthatjIjwilljneedjonlyj70jpercentjofjmyjpre-
jretirementj incomejtoj managej nicelyjinjretirement.
Therejarejseveraljworksheetsjinjthejbook.jWorksheetj1.1jgivesjthejstudentjajformatjtojwritejdow
njtheirjPersonaljFinancialjGoals.jTherejisjpowerjinjwritingjdownjgoalsj[andjmostjanyjotherjplan].jR
ecordingjthejgoaljandjthenjreviewingjthreejmonthsjlaterjwilljhelpjyoujtojkeepjfocusjonjthejgoal.
LG3jExplainjthejlifejcyclejofjfinancialjplans,jtheirjrolejinjachievingjyourjfinancialjgoals,jhowjtojd
ealjwithjspecialjplanningjconcerns,jandjthejusejofjprofessionaljfinancialjplanners.
Exhibitj1.7jcanjhelpjfocusjthejattentionjonjhowjgoalsjdifferjbetweenjthejvariousjstagesjofjlife.jSect
ionj1-3bjlistsjvariousjdecisionsjthatjyoujwilljhavejtojmakejoverjyourjlife.jThejsectionj1-
3cjaddressesjSpecialjPlanningjConcerns.jWorksheetj1.2jfocusesjonjthejfinancialjbenefitjtojthejfa
milyjofjthejsecondjincome.jIfjthejsecondjincomejisjfromjajminimumjwagejjob,jitjmayjnotjbejajgoodj
financialjdecision.j Ofjcoursejhavingjajjob,jevenjaj minimumjwagej job,j mayjgivejthejpersonjpsychicj i
ncomejthatj willjoverridejthej financialjimpact.
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ghjthejamountjofjmoneyjhejspentjonjpurchasingjtobaccoj products.jThatjcomputationjhadja
, lotjtojdojwithjmyjdecisionjtojnotj smoke.jHowjthisjrelatesjtojthejcoursejisjthatjthisjisjanjillustrationj
ofjhowjthejfinancialjimpactjofjajdecisionjcanjdrivejthejdecision.
LG4jExaminejthejeconomicjenvironment’sjinfluencejonjpersonaljfinancialjplanning.
Forjolderjfolks,jthejfinancialjcrisisjofj2008-
2009jisjfreshjinjourjmemory.jTojthejstudentjofj2021,jthatjcrisisjisjmorejofjhistoryjthanjlife.jIfjyoujca
njsharejajwarjstoryjonjhowjyoujwerejpersonallyjimpacted,jitjwilljhelpjbringjthejimpactjofjthejworld
jeconomyjonjfinancialjplansjtojlife.jThejbookjspeaksjhowjtojmanagejthisjtypejofjcrisis,jbutjyoujhadj
tojgojthroughjitjtojreallyjunderstandjthejimpactj itj had.
Thejvaluejofjprofessionaljadvicejisjgreatlyjunderstated.jIfjbyjtalkingjtojajprofessionaljyoujcanjpreve
ntjmakingjajmistakej--jthatj canjbejofjajgreatjvalue.jSectionj1-
3ejspeaksjtojthejusejofjprofessionaljfinancialjplanners.jExhibitj 1.9jlistsjoutjthejvariousjcertificationsjt
hatj plannersjhave.
Economicjorjbusinessjcyclesjarejreal.jPerhapsjthejmostjusefuljthingjaboutjthejcyclesjisjthejknowle
dgejthatjifjthingsjarejbad,jyoujknowjtheyjwilljgetjbetter.jOfjcourse,jwhenjlifejisjgood,jyoujknowjtha
tjthejbadjcyclejwilljcomejaroundjagain.jThus,j financialjplanningjrequiresjsavingj injt hejgoodjtimesj fo
rjthejbadjtimes.jj Seejthej ―Testj Yourself‖jquestionj1-17j forj ajshortj discussionjofjbusinessjcycles.
Thejpowerjofjcompoundingjisjrarelyjunderstood.jExhibitj1.8jshowsjhowjthejamountj$10,000jw
illjgrowjoverjtime.jThejlongerjthejinvestmentjstaysjinvested,jthejgreaterjthejamountj–
jthejpowerjofjcompoundj interest.
LG5jEvaluatejthejimpactjofjage,jeducation,jandjgeographicjlocationjonjpersonaljincome.
Exhibitj1.12jsaysjitjall.
LG6jUnderstandjthejimportancejofjcareerjchoicesjandjtheirjrelationshipjtojpersonaljfinancialjplan
ning.
Exhibitj 1.13jshowsjthatjthejchoicejofjajcollegej majorjhasjajfinancialjimpact.j Ofjcoursejmoneyjcannotj
buyjhappiness,jbutjhavingjajbitjhelps.jIfjyoujreallyjwantjtojbejanjelementaryjschooljteacher,jyoujmu
stjrecognizejthatjyoujwilljnotjhavejasjmuchjwealthjasjajlawyerjorjfinancialjanalyst.
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hejchapterjwhenjexamjtimejcomes.jItjwilljbejusefuljtojpointjoutjtojthejstudentjhowjtojusejthisjm
aterial.
LinkjtojSolutionsjtojFinancialjPlanningjExercises
Pre-tests
j j j j j j j
Edition by Randy Billingsley, Lawrence J. Gitman, Mi
j j j j j j j
chael D. Joehnk
j j
,SOLUTION MANUAL FOR j j
Personal Financial Planning 15th Edition by Randy Billingsley, La
j j j j j j j j
wrence J. Gitman, Michael D. Joehnk
j j j j j
Understanding the Financial j j j
Planning ProcessChapter 1 j j j
HowjWilljThisjAffectjMe?
Thejheartjofjfinancialjplanningjisjmakingjsurejyourjvaluesjlinejupjwithjhowjyoujspendjandjsave.jThat
jmeansjknowingjwherejyoujarejfinanciallyjandjplanningjonjhowjtojgetjwherejyoujwantjtojbejinjthejf
uturejnojmatterjwhatjlifejthrowsjatjyou.jForjexample,jhowjshouldjyourjplanjhandlejthejprojectionjt
hatjSocialjSecurityjcostsjmayjexceedjrevenuesjbyj2035?jAndjwhatjifjthejgovernmentjdecidesjtojrais
ejtaxjratesjtojhelpjcoverjthejfederaljdeficit?jAnjinformedjfinancialjplanjshouldjreflectj suchjuncertai
ntiesjandj more.
Thisjchapterjoverviewsjthejfinancialjplanningjprocessjandjexplainsjitsjcontext.jTopicsjincludejho
wjfinancialjplansjchangejtojaccommodatejyourjcurrentjstagejinjlifejandjthejrolejthatjfinancialjplan
nersjcanjplayjinjhelpingjyoujachievejyourjobjectives.jAfterjreadingjthisjchapterjyoujwilljhavejajgoo
djperspectivejonjhowjtojorganizej yourjoveralljpersonaljfinancialjplan.
LEARNING GOALS j
LG1jIdentifyjthejbenefitsjofjusingjpersonaljfinancialjplanningjtechniquesjtojmanagejyourjfinances
.
KeyjconceptjinjthisjsectionjisjthejplanningjmodeljasjdisplayedjinjExhibitj1.1.jYourjstandardjofjlivin
gjisjgreatlyjimpactedjbyjyourjspendingjhabitsjandjyourjcommitmentjtojsaving.jYourjspendingjisjm
easuredjbyjyourjpropensityjtojconsume.jWealthjisjthejtotaljvaluejofjalljpropertyjyoujownjlessjthe
jamountjthatj youjowejtojothers.
ACTIVITY:j Askjthejstudentsjtojassumejthatjtheyjhavejjustj inheritedj$100,000.j Whatj willjyoujdojwit
hjthej money?j Writejdownjthreejwaysj youjwilljspendjorjusejthej money.
,Askjthejstudentsjtojsharejonejitemjwithjthejclassjandjrecordjwhatjtheyjsayjsojthatjthejentirejclassjc
anjreflectjonjthejanswers.jHopefully,jatjleastjajfewjwilljmentionjinvestingjevenjifjonlyj$10,000jofjth
ejamount.jUsejtheirjanswersjtojdiscussjtakingj carejofjcurrentj needsjversusjfuturejneeds.
Focusjonjtheirjpropensityjtojconsumejandjitsjimpactjonjaccumulatingjwealth.jPointjoutjthejF
inancialjPlanningjTip,j ―BejSMARTj injPlanningj YourjFinancialjGoals.‖
UsejExhibitj1.2jtojshowjhowjthejaveragejpersonjearnsjandjspendsjtheirjmoneyjandjExhibitj1.6jtojhel
pjthejstudentj identifyjwherejtheyjarej now.
LG2jDescribejthejpersonaljfinancialjplanningjprocessjandjdefinejyourjgoals.
Dwightj Eisenhower,jarmyj generaljandj president,j isjquotedjasjsayingj ―Plansjarejuseless;jPlanningjisj
priceless‖.jThejprocessjofjplanningjallowsjyoujtojfocusjonjthejissuesjthatjarejmostjimportantjandjt
oj bejreadyjwhenjthingsjchange.
Exhibitj1.3jlistsjthejSixjStepjFinancialjPlanningjProcess.jThejfirstjandjmostjimportantjisjdefiningjy
ourjfinancialjgoals.jExhibitj1.6jlistsjgoalsjbyjagejtojdemonstratejhowjgoalsjchangejoverjtime.jUse
jthejexamplesjinjExhibitj 1.5jtojaskjstudentsjifjthejassumptionsjarejrealistic.jYes,jthejanswerjisjinjth
ejexhibit,jbutjmanyjwilljnotjhavejreadjchapterjatjthisjpoint.jForjyourjuse,jthejassumptionsjare:
Assumptionj1:jSavingjajfewjthousandjdollarsjajyearjshouldjprovidejenoughjtojfundjmyjchild‘sjcoll
egejEducation.
Assumptionj2:jAnjemergencyjfundjlastingj3j monthsjshouldjbejadequate.
Assumptionj3:jIjwilljbejablejtojretirejatj65jandjshouldjhavejplentyjtojlivejonjinjretirement.jAss
umptionj4:jI‘mjrelyingjonjthejrulejofjthumbjthatjIjwilljneedjonlyj70jpercentjofjmyjpre-
jretirementj incomejtoj managej nicelyjinjretirement.
Therejarejseveraljworksheetsjinjthejbook.jWorksheetj1.1jgivesjthejstudentjajformatjtojwritejdow
njtheirjPersonaljFinancialjGoals.jTherejisjpowerjinjwritingjdownjgoalsj[andjmostjanyjotherjplan].jR
ecordingjthejgoaljandjthenjreviewingjthreejmonthsjlaterjwilljhelpjyoujtojkeepjfocusjonjthejgoal.
LG3jExplainjthejlifejcyclejofjfinancialjplans,jtheirjrolejinjachievingjyourjfinancialjgoals,jhowjtojd
ealjwithjspecialjplanningjconcerns,jandjthejusejofjprofessionaljfinancialjplanners.
Exhibitj1.7jcanjhelpjfocusjthejattentionjonjhowjgoalsjdifferjbetweenjthejvariousjstagesjofjlife.jSect
ionj1-3bjlistsjvariousjdecisionsjthatjyoujwilljhavejtojmakejoverjyourjlife.jThejsectionj1-
3cjaddressesjSpecialjPlanningjConcerns.jWorksheetj1.2jfocusesjonjthejfinancialjbenefitjtojthejfa
milyjofjthejsecondjincome.jIfjthejsecondjincomejisjfromjajminimumjwagejjob,jitjmayjnotjbejajgoodj
financialjdecision.j Ofjcoursejhavingjajjob,jevenjaj minimumjwagej job,j mayjgivejthejpersonjpsychicj i
ncomejthatj willjoverridejthej financialjimpact.
Whilejperhapsjoffjtopic,jIjrecalljajhighjschooljsciencejteacherjwhojwasjajsmoker.jHejwalkedjthrou
ghjthejamountjofjmoneyjhejspentjonjpurchasingjtobaccoj products.jThatjcomputationjhadja
, lotjtojdojwithjmyjdecisionjtojnotj smoke.jHowjthisjrelatesjtojthejcoursejisjthatjthisjisjanjillustrationj
ofjhowjthejfinancialjimpactjofjajdecisionjcanjdrivejthejdecision.
LG4jExaminejthejeconomicjenvironment’sjinfluencejonjpersonaljfinancialjplanning.
Forjolderjfolks,jthejfinancialjcrisisjofj2008-
2009jisjfreshjinjourjmemory.jTojthejstudentjofj2021,jthatjcrisisjisjmorejofjhistoryjthanjlife.jIfjyoujca
njsharejajwarjstoryjonjhowjyoujwerejpersonallyjimpacted,jitjwilljhelpjbringjthejimpactjofjthejworld
jeconomyjonjfinancialjplansjtojlife.jThejbookjspeaksjhowjtojmanagejthisjtypejofjcrisis,jbutjyoujhadj
tojgojthroughjitjtojreallyjunderstandjthejimpactj itj had.
Thejvaluejofjprofessionaljadvicejisjgreatlyjunderstated.jIfjbyjtalkingjtojajprofessionaljyoujcanjpreve
ntjmakingjajmistakej--jthatj canjbejofjajgreatjvalue.jSectionj1-
3ejspeaksjtojthejusejofjprofessionaljfinancialjplanners.jExhibitj 1.9jlistsjoutjthejvariousjcertificationsjt
hatj plannersjhave.
Economicjorjbusinessjcyclesjarejreal.jPerhapsjthejmostjusefuljthingjaboutjthejcyclesjisjthejknowle
dgejthatjifjthingsjarejbad,jyoujknowjtheyjwilljgetjbetter.jOfjcourse,jwhenjlifejisjgood,jyoujknowjtha
tjthejbadjcyclejwilljcomejaroundjagain.jThus,j financialjplanningjrequiresjsavingj injt hejgoodjtimesj fo
rjthejbadjtimes.jj Seejthej ―Testj Yourself‖jquestionj1-17j forj ajshortj discussionjofjbusinessjcycles.
Thejpowerjofjcompoundingjisjrarelyjunderstood.jExhibitj1.8jshowsjhowjthejamountj$10,000jw
illjgrowjoverjtime.jThejlongerjthejinvestmentjstaysjinvested,jthejgreaterjthejamountj–
jthejpowerjofjcompoundj interest.
LG5jEvaluatejthejimpactjofjage,jeducation,jandjgeographicjlocationjonjpersonaljincome.
Exhibitj1.12jsaysjitjall.
LG6jUnderstandjthejimportancejofjcareerjchoicesjandjtheirjrelationshipjtojpersonaljfinancialjplan
ning.
Exhibitj 1.13jshowsjthatjthejchoicejofjajcollegej majorjhasjajfinancialjimpact.j Ofjcoursejmoneyjcannotj
buyjhappiness,jbutjhavingjajbitjhelps.jIfjyoujreallyjwantjtojbejanjelementaryjschooljteacher,jyoujmu
stjrecognizejthatjyoujwilljnotjhavejasjmuchjwealthjasjajlawyerjorjfinancialjanalyst.
Thejsummaryjofjthejlearningjgoalsjatjthejendjofjthejchapterjshouldjaidjthejstudentjinjreviewingjt
hejchapterjwhenjexamjtimejcomes.jItjwilljbejusefuljtojpointjoutjtojthejstudentjhowjtojusejthisjm
aterial.
LinkjtojSolutionsjtojFinancialjPlanningjExercises
Pre-tests
