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,SOLUTION MANUAL FOR oo oo
Personal Financial Planning 15th Edition by Randy
oo oo oo oo oo oo
Billingsley, Lawrence J. Gitman, Michael D. Joehnk
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How ssWill s s This ssAffect s s Me?
The ssheart s s of ssfinancial ssplanning s s is s s making s s sure s s your s s values s s line ssup s s with s s how s s you
s s spend s s and sssave. ssThat ssmeans ssknowing sswhere ssyou ssare ssfinancially ssand ssplanning sson sshow
ssto ssget sswhere s s you sswant ssto ssbe ssin ssthe ssfuture ssno ssmatter sswhat sslife ssthrows ssat ssyou. ssFor
ssexample, sshow ssshould ssyour ssplan s s handle ssthe ssprojection ssthat ssSocial ssSecurity sscosts ssmay
ssexceed ssrevenues ssby ss2035? ssAnd sswhat ssif ssthe ssgovernment ssdecides ssto ssraise sstax ssrates ssto sshelp
sscover ssthe ssfederal ssdeficit? ssAn ssinformed ssfinancial ssplan ssshould ssreflect sssuch ssuncertainties
ssand ssmore.
This sschapter ssoverviews ssthe ssfinancial ssplanning ssprocess ssand ssexplains ssits sscontext. ssTopics
ssinclude sshow ssfinancial ssplans sschange ssto s s accommodate s s your sscurrent s s stage ssin sslife ssand ssthe
ssrole ssthat ssfinancial ssplanners sscan ssplay ssin sshelping ss you ssachieve ss your ssobjectives. ssAfter
ssreading ssthis sschapter ss you sswill sshave ssa ssgood ssperspective sson sshow ssto ssorganize s s your ssoverall
sspersonal ssfinancial ssplan.
LEARNINGGOALS
LG1 ssIdentify ssthe ssbenefits ssof ssusing sspersonal ssfinancial ssplanning sstechniques ssto ssmanage
ssyour ssfinances.
Key ssconcept ssin ssthis sssection ssis ssthe ssplanning ssmodel ssas ssdisplayed ssin ssExhibit ss1.1. ssYour
ssstandard ssof ssliving ssis ssgreatly ssimpacted ssby ssyour ssspending sshabits ssand ssyour sscommitment ssto
sssaving. ssYour ssspending s s is s s measured s s by ssyour sspropensity s s to s s consume. s s Wealth s s is ssthe
s s total ssvalue s s of ssall ssproperty ss you ssown ssless ssthe ssamount ssthat ssyou ssowe ssto ssothers.
ACTIVITY: s s Ask ssthe ssstudentssto ssassume ssthat sstheyhave ssjust ssinherited ss$100,000. ssWhat sswill
ssyou ssdo sswith ssthe ssmoney? s s Write s s down ssthree s s ways s s you s s will s s spend ssor ssuse ssthe ssmoney.
,Ask s s the s s students s s to s s share s s one s s item sswith ssthe s s class s s and s s record s s what s s they sssay ssso
s s that s s the s s entire ssclass s s can s s reflect s s on ssthe s s answers. s s Hopefully, s s at s s least s s a s s few s s will
s s mention s s investing s s even s s if ss only
$10,000 s s of ssthe s s amount.Use s s their s s answers s s to s s discuss s s taking s s care s s of s s current
s s needs s s versus ssfuture ssneeds.
Focus sson sstheir sspropensityssto ssconsume ssand ssits ssimpact sson ssaccumulating sswealth. ssPoint ssout ssthe
ssFinancial ssPlanning ssTip, ss―Be ssSMART ssin ssPlanning ssYour ssFinancial ssGoals.‖
Use ssExhibit ss1.2 ssto ssshow sshow ssthe ssaverage ssperson ssearns ssand ssspends sstheir ssmoney ssand
ssExhibit ss1.6 ssto sshelp ssthe ssstudent ssidentify sswhere ssthey ssare ssnow.
LG2 ssDescribe ssthe sspersonal ssfinancial ssplanning ss process ssand s s define ssyour ssgoals.
Dwight Eisenhower,ssarmy ssgeneralssand sspresident, ssisssquoted ssassssaying ss―Plansssaressuseless;
oo
ssPlanning ssis sspriceless‖. ssThe ssprocess ssof ssplanning ssallows s s you s s to ssfocus sson ssthe ssissues ssthat
ssare ssmost s s important ssand ssto ssbe ssready sswhen ssthings sschange.
Exhibit ss1.3 sslists ssthe ssSix ssStep ssFinancial ssPlanning ssProcess. ssThe ssfirst ssand ssmost ssimportant ssis
ssdefining ss your ssfinancial ssgoals. ssExhibit ss1.6 sslists ssgoals ssby ssage ssto ssdemonstrate sshow ssgoals
sschange ssover sstime. ssUse ssthe ssexamples ssin ssExhibit ss1.5 ssto ssask ssstudents ssifssthe ssassumptions ssare
ssrealistic. ssYes, ssthe ssanswer s s is s s in ssthe ssexhibit, s s but s s manysswill ssnot s s have s s read s s chapter s s at
ssthis sspoint. s s For s s your s s use, ssthe ssassumptions ssare:
Assumption s s 1: s s Saving ssa s s few ssthousand ssdollars ssa s s year s s should s s provide ssenough ssto
s s fund s s my sschild‘s sscollege ssEducation.
Assumption ss2: ssAn emergency ssfund s s lasting ss3 s s months ssshould s s be ssadequate.
oo
Assumption s s 3: s s I sswill s s be ssable ssto ssretire ssat s s 65 ssand s s should sshave ssplenty ssto s s live
sson ssin ssretirement. ssAssumption ss4: ssI‘m ssrelying sson ssthe ssrule ssof ssthumb ssthat ssI sswill ssneed
ssonly ss70 sspercent ssof ssmy sspre- ssretirement ssincome ssto ssmanage ssnicely ssin ssretirement.
There ssare ssseveral ssworksheets ssin ssthe ssbook. ssWorksheet ss1.1 ssgives ssthe ssstudent ssa ssformat ssto
sswrite ssdown their ssPersonalssFinancialssGoals. ssThere ssis sspower ssin sswriting ssdown ssgoals ss[and
oo
ssmost ssanyother ssplan]. ssRecording s s the ssgoal ssand ssthen ssreviewing ssthree ssmonths sslater sswill
sshelp s s you s s to sskeep ssfocus sson ssthe ssgoal.
LG3 s s Explain s s the s s life s s cycle s s of s s financial s s plans, s s their s s role s s in s s achieving
s s your s s financial ssgoals, sshow ssto ssdeal sswith ssspecial ssplanning ssconcerns, ssand ssthe ssuse ssof
ssprofessional ssfinancial ssplanners.
Exhibit ss1.7 sscan sshelp ssfocus ssthe ssattention sson sshow ssgoals ssdiffer ssbetween ssthe ssvarious ssstages ssof
sslife. s s Section s s 1-3b s s lists s s various s s decisions s s that s s you s s will s s have s s to s s make s s over s s your
s s life. s s The s s section s s 1- ss3c ssaddresses ssSpecial ssPlanning ssConcerns. ssWorksheet ss1.2 ssfocuses sson
ssthe ssfinancial ssbenefit ssto ssthe ssfamily ssof ssthe sssecond s s income. s s If ssthe sssecond s s income s s is s s from ssa
s s minimum sswage s s job, s s it s s may ssnot s s be ssa ssgood ssfinancial ssdecision. ssOfscourse sshaving ssa ssjob,
sseven a ssminimumsswage ssjob, ssmay ssgive ssthe ssperson sspsychic ssincome ssthat sswill ssoverride ssthe
oo
ssfinancial ssimpact.
While ssperhaps ssoff sstopic, ssI ssrecall ssa sshigh ssschool ssscience ssteacher sswho sswas ssa sssmoker. ssHe
sswalked ssthrough ssthe ssamount s s of ssmoney sshe s s spent s s on sspurchasing s s tobacco s s products.
s s That s s computation sshad ssa
, lot ssto ssdo sswith ssmy ssdecision ssto ssnot sssmoke. ssHowssthis ssrelates ssto ssthe sscourse ssis ssthat ssthis ssis ssan
ssillustration ssof sshow ssthe ssfinancial ssimpact ssof ssa ssdecision sscan ssdrive ssthe ssdecision.
LG4 ssExamine ssthe sseconomic ssenvironment’s ssinfluence sson sspersonal ssfinancial ssplanning.
For ssolder s s folks, s s the ssfinancial sscrisis s s of ss2008-2009 s s is s s fresh s s in ssour s s memory. s s To ssthe
ssstudent s s of ss2021, ssthat sscrisis ssis ssmore ssof sshistory ssthan sslife. ssIf ssyou sscan ssshare ssa sswar ssstory
sson sshow ssyou sswere s s personally ssimpacted, ssit sswill sshelp ssbring ssthe ssimpact ssof ssthe ssworld
sseconomy sson ssfinancial ssplans ssto sslife. ssThe ssbook ssspeaks sshow ssto ssmanage ssthis sstype ssof sscrisis,
ssbut ssyou sshad ssto ssgo ssthrough ssit ssto ssreally s s understand ssthe ssimpact ssit sshad.
The ssvalue ssof ssprofessional ssadvice ssis ssgreatly ssunderstated. ssIf ssby sstalking ssto ssa ssprofessional
ssyou sscan ssprevent ssmaking ssa ssmistake ss-- ssthat sscan ssbe ssof ssa ssgreat ssvalue. ssSection ss1-3e ssspeaks
ssto ssthe ssuse ssof s s professional ssfinancial ssplanners. s s Exhibit s s 1.9 sslists ssout ssthe ssvarious
sscertifications ssthat s s planners sshave.
Economic ssor ssbusiness sscycles ssare ssreal. ssPerhaps ssthe ssmost ssuseful ssthing ssabout ssthe sscycles ssis
ssthe ssknowledge ssthat ssif ssthings ssare ssbad, ss you ssknow ssthey sswill ssget ssbetter. Of sscourse, sswhen
sslife ssis ssgood, ss you ssknow ssthat ssthe ssbad sscycle sswillcome ssaround ssagain. s s Thus, ssfinancial
ssplanning ssrequires sssaving ssin s s thesgood times sfor ssthe ssbad sstimes. s s Seesthe ss―Test ssYourself‖
oo
ssquestion 1-17 ssfor ssa ssshort ssdiscussion ssof ssbusiness sscycles.
oo
The sspower ssof sscompounding ssis ssrarely ssunderstood. ssExhibit ss1.8 ssshows sshow ssthe ssamount
ss$10,000 sswill ssgrow ssover sstime. ssThe sslonger ssthe ssinvestment ssstays ssinvested, ssthe ssgreater ssthe
ssamount ss– ssthe sspower ssof sscompound ssinterest.
LG5 ssEvaluate ss the ssimpact s s of ssage, sseducation, ssand ssgeographic s s location s s on ss personal ssincome.
Exhibit s s 1.12 sssays ssit s s all.
LG6 ssUnderstand ssthe ssimportance ssof sscareersschoices ssand sstheirssrelationship ssto sspersonal
ssfinancial ssplanning.
Exhibit ss1.13 ssshows ssthat ssthe sschoice ssofa sscollege ssmajor sshas ssa ssfinancial ssimpact. ssOf sscourse
ssmoney sscannot ssbuy sshappiness, ssbut sshaving ssa ssbit sshelps. ssIf ss you ssreally sswant ssto ssbe ssan
sselementary ssschool ssteacher, ssyou ssmust ssrecognize ssthat ssyou sswill ssnot sshave ssas ssmuch sswealth
ssas ssa sslawyer ssor ssfinancial ssanalyst.
The sssummary ssof ssthe sslearning s s goals ssat ssthe ssend ssof ssthe sschapter s s should ssaid s s the ssstudent
s s in ssreviewing s s the s s chapter s s when s s exam sstime s s comes. s s It s s will s s be s s useful ssto s s point
s s out s s to s s the s s student sshow ssto ssuse ssthis ssmaterial.
Link ssto ss Solutions ssto ssFinancialssPlanning s s Exercises
Pre-tests
,SOLUTION MANUAL FOR oo oo
Personal Financial Planning 15th Edition by Randy
oo oo oo oo oo oo
Billingsley, Lawrence J. Gitman, Michael D. Joehnk
o oo oo oo oo oo oo
oo oo
oo o
oo
How ssWill s s This ssAffect s s Me?
The ssheart s s of ssfinancial ssplanning s s is s s making s s sure s s your s s values s s line ssup s s with s s how s s you
s s spend s s and sssave. ssThat ssmeans ssknowing sswhere ssyou ssare ssfinancially ssand ssplanning sson sshow
ssto ssget sswhere s s you sswant ssto ssbe ssin ssthe ssfuture ssno ssmatter sswhat sslife ssthrows ssat ssyou. ssFor
ssexample, sshow ssshould ssyour ssplan s s handle ssthe ssprojection ssthat ssSocial ssSecurity sscosts ssmay
ssexceed ssrevenues ssby ss2035? ssAnd sswhat ssif ssthe ssgovernment ssdecides ssto ssraise sstax ssrates ssto sshelp
sscover ssthe ssfederal ssdeficit? ssAn ssinformed ssfinancial ssplan ssshould ssreflect sssuch ssuncertainties
ssand ssmore.
This sschapter ssoverviews ssthe ssfinancial ssplanning ssprocess ssand ssexplains ssits sscontext. ssTopics
ssinclude sshow ssfinancial ssplans sschange ssto s s accommodate s s your sscurrent s s stage ssin sslife ssand ssthe
ssrole ssthat ssfinancial ssplanners sscan ssplay ssin sshelping ss you ssachieve ss your ssobjectives. ssAfter
ssreading ssthis sschapter ss you sswill sshave ssa ssgood ssperspective sson sshow ssto ssorganize s s your ssoverall
sspersonal ssfinancial ssplan.
LEARNINGGOALS
LG1 ssIdentify ssthe ssbenefits ssof ssusing sspersonal ssfinancial ssplanning sstechniques ssto ssmanage
ssyour ssfinances.
Key ssconcept ssin ssthis sssection ssis ssthe ssplanning ssmodel ssas ssdisplayed ssin ssExhibit ss1.1. ssYour
ssstandard ssof ssliving ssis ssgreatly ssimpacted ssby ssyour ssspending sshabits ssand ssyour sscommitment ssto
sssaving. ssYour ssspending s s is s s measured s s by ssyour sspropensity s s to s s consume. s s Wealth s s is ssthe
s s total ssvalue s s of ssall ssproperty ss you ssown ssless ssthe ssamount ssthat ssyou ssowe ssto ssothers.
ACTIVITY: s s Ask ssthe ssstudentssto ssassume ssthat sstheyhave ssjust ssinherited ss$100,000. ssWhat sswill
ssyou ssdo sswith ssthe ssmoney? s s Write s s down ssthree s s ways s s you s s will s s spend ssor ssuse ssthe ssmoney.
,Ask s s the s s students s s to s s share s s one s s item sswith ssthe s s class s s and s s record s s what s s they sssay ssso
s s that s s the s s entire ssclass s s can s s reflect s s on ssthe s s answers. s s Hopefully, s s at s s least s s a s s few s s will
s s mention s s investing s s even s s if ss only
$10,000 s s of ssthe s s amount.Use s s their s s answers s s to s s discuss s s taking s s care s s of s s current
s s needs s s versus ssfuture ssneeds.
Focus sson sstheir sspropensityssto ssconsume ssand ssits ssimpact sson ssaccumulating sswealth. ssPoint ssout ssthe
ssFinancial ssPlanning ssTip, ss―Be ssSMART ssin ssPlanning ssYour ssFinancial ssGoals.‖
Use ssExhibit ss1.2 ssto ssshow sshow ssthe ssaverage ssperson ssearns ssand ssspends sstheir ssmoney ssand
ssExhibit ss1.6 ssto sshelp ssthe ssstudent ssidentify sswhere ssthey ssare ssnow.
LG2 ssDescribe ssthe sspersonal ssfinancial ssplanning ss process ssand s s define ssyour ssgoals.
Dwight Eisenhower,ssarmy ssgeneralssand sspresident, ssisssquoted ssassssaying ss―Plansssaressuseless;
oo
ssPlanning ssis sspriceless‖. ssThe ssprocess ssof ssplanning ssallows s s you s s to ssfocus sson ssthe ssissues ssthat
ssare ssmost s s important ssand ssto ssbe ssready sswhen ssthings sschange.
Exhibit ss1.3 sslists ssthe ssSix ssStep ssFinancial ssPlanning ssProcess. ssThe ssfirst ssand ssmost ssimportant ssis
ssdefining ss your ssfinancial ssgoals. ssExhibit ss1.6 sslists ssgoals ssby ssage ssto ssdemonstrate sshow ssgoals
sschange ssover sstime. ssUse ssthe ssexamples ssin ssExhibit ss1.5 ssto ssask ssstudents ssifssthe ssassumptions ssare
ssrealistic. ssYes, ssthe ssanswer s s is s s in ssthe ssexhibit, s s but s s manysswill ssnot s s have s s read s s chapter s s at
ssthis sspoint. s s For s s your s s use, ssthe ssassumptions ssare:
Assumption s s 1: s s Saving ssa s s few ssthousand ssdollars ssa s s year s s should s s provide ssenough ssto
s s fund s s my sschild‘s sscollege ssEducation.
Assumption ss2: ssAn emergency ssfund s s lasting ss3 s s months ssshould s s be ssadequate.
oo
Assumption s s 3: s s I sswill s s be ssable ssto ssretire ssat s s 65 ssand s s should sshave ssplenty ssto s s live
sson ssin ssretirement. ssAssumption ss4: ssI‘m ssrelying sson ssthe ssrule ssof ssthumb ssthat ssI sswill ssneed
ssonly ss70 sspercent ssof ssmy sspre- ssretirement ssincome ssto ssmanage ssnicely ssin ssretirement.
There ssare ssseveral ssworksheets ssin ssthe ssbook. ssWorksheet ss1.1 ssgives ssthe ssstudent ssa ssformat ssto
sswrite ssdown their ssPersonalssFinancialssGoals. ssThere ssis sspower ssin sswriting ssdown ssgoals ss[and
oo
ssmost ssanyother ssplan]. ssRecording s s the ssgoal ssand ssthen ssreviewing ssthree ssmonths sslater sswill
sshelp s s you s s to sskeep ssfocus sson ssthe ssgoal.
LG3 s s Explain s s the s s life s s cycle s s of s s financial s s plans, s s their s s role s s in s s achieving
s s your s s financial ssgoals, sshow ssto ssdeal sswith ssspecial ssplanning ssconcerns, ssand ssthe ssuse ssof
ssprofessional ssfinancial ssplanners.
Exhibit ss1.7 sscan sshelp ssfocus ssthe ssattention sson sshow ssgoals ssdiffer ssbetween ssthe ssvarious ssstages ssof
sslife. s s Section s s 1-3b s s lists s s various s s decisions s s that s s you s s will s s have s s to s s make s s over s s your
s s life. s s The s s section s s 1- ss3c ssaddresses ssSpecial ssPlanning ssConcerns. ssWorksheet ss1.2 ssfocuses sson
ssthe ssfinancial ssbenefit ssto ssthe ssfamily ssof ssthe sssecond s s income. s s If ssthe sssecond s s income s s is s s from ssa
s s minimum sswage s s job, s s it s s may ssnot s s be ssa ssgood ssfinancial ssdecision. ssOfscourse sshaving ssa ssjob,
sseven a ssminimumsswage ssjob, ssmay ssgive ssthe ssperson sspsychic ssincome ssthat sswill ssoverride ssthe
oo
ssfinancial ssimpact.
While ssperhaps ssoff sstopic, ssI ssrecall ssa sshigh ssschool ssscience ssteacher sswho sswas ssa sssmoker. ssHe
sswalked ssthrough ssthe ssamount s s of ssmoney sshe s s spent s s on sspurchasing s s tobacco s s products.
s s That s s computation sshad ssa
, lot ssto ssdo sswith ssmy ssdecision ssto ssnot sssmoke. ssHowssthis ssrelates ssto ssthe sscourse ssis ssthat ssthis ssis ssan
ssillustration ssof sshow ssthe ssfinancial ssimpact ssof ssa ssdecision sscan ssdrive ssthe ssdecision.
LG4 ssExamine ssthe sseconomic ssenvironment’s ssinfluence sson sspersonal ssfinancial ssplanning.
For ssolder s s folks, s s the ssfinancial sscrisis s s of ss2008-2009 s s is s s fresh s s in ssour s s memory. s s To ssthe
ssstudent s s of ss2021, ssthat sscrisis ssis ssmore ssof sshistory ssthan sslife. ssIf ssyou sscan ssshare ssa sswar ssstory
sson sshow ssyou sswere s s personally ssimpacted, ssit sswill sshelp ssbring ssthe ssimpact ssof ssthe ssworld
sseconomy sson ssfinancial ssplans ssto sslife. ssThe ssbook ssspeaks sshow ssto ssmanage ssthis sstype ssof sscrisis,
ssbut ssyou sshad ssto ssgo ssthrough ssit ssto ssreally s s understand ssthe ssimpact ssit sshad.
The ssvalue ssof ssprofessional ssadvice ssis ssgreatly ssunderstated. ssIf ssby sstalking ssto ssa ssprofessional
ssyou sscan ssprevent ssmaking ssa ssmistake ss-- ssthat sscan ssbe ssof ssa ssgreat ssvalue. ssSection ss1-3e ssspeaks
ssto ssthe ssuse ssof s s professional ssfinancial ssplanners. s s Exhibit s s 1.9 sslists ssout ssthe ssvarious
sscertifications ssthat s s planners sshave.
Economic ssor ssbusiness sscycles ssare ssreal. ssPerhaps ssthe ssmost ssuseful ssthing ssabout ssthe sscycles ssis
ssthe ssknowledge ssthat ssif ssthings ssare ssbad, ss you ssknow ssthey sswill ssget ssbetter. Of sscourse, sswhen
sslife ssis ssgood, ss you ssknow ssthat ssthe ssbad sscycle sswillcome ssaround ssagain. s s Thus, ssfinancial
ssplanning ssrequires sssaving ssin s s thesgood times sfor ssthe ssbad sstimes. s s Seesthe ss―Test ssYourself‖
oo
ssquestion 1-17 ssfor ssa ssshort ssdiscussion ssof ssbusiness sscycles.
oo
The sspower ssof sscompounding ssis ssrarely ssunderstood. ssExhibit ss1.8 ssshows sshow ssthe ssamount
ss$10,000 sswill ssgrow ssover sstime. ssThe sslonger ssthe ssinvestment ssstays ssinvested, ssthe ssgreater ssthe
ssamount ss– ssthe sspower ssof sscompound ssinterest.
LG5 ssEvaluate ss the ssimpact s s of ssage, sseducation, ssand ssgeographic s s location s s on ss personal ssincome.
Exhibit s s 1.12 sssays ssit s s all.
LG6 ssUnderstand ssthe ssimportance ssof sscareersschoices ssand sstheirssrelationship ssto sspersonal
ssfinancial ssplanning.
Exhibit ss1.13 ssshows ssthat ssthe sschoice ssofa sscollege ssmajor sshas ssa ssfinancial ssimpact. ssOf sscourse
ssmoney sscannot ssbuy sshappiness, ssbut sshaving ssa ssbit sshelps. ssIf ss you ssreally sswant ssto ssbe ssan
sselementary ssschool ssteacher, ssyou ssmust ssrecognize ssthat ssyou sswill ssnot sshave ssas ssmuch sswealth
ssas ssa sslawyer ssor ssfinancial ssanalyst.
The sssummary ssof ssthe sslearning s s goals ssat ssthe ssend ssof ssthe sschapter s s should ssaid s s the ssstudent
s s in ssreviewing s s the s s chapter s s when s s exam sstime s s comes. s s It s s will s s be s s useful ssto s s point
s s out s s to s s the s s student sshow ssto ssuse ssthis ssmaterial.
Link ssto ss Solutions ssto ssFinancialssPlanning s s Exercises
Pre-tests
