STUDY NOTES & REFERENCE GUIDE
SOLUTION MANUAL
Personal Financial Planning,16th
Edition
by Randy Billingsley, Lawrence J. Gitman, Chapters 1 - 15, Complete
StudyNexa ‐ Stuvia | Page 1 of 51
, STUDY NOTES & REFERENCE GUIDE
Table of Contents
Part I: FOUNDATIONS OF FINANCIAL PLANNING.
1. Understanding the Financial Planning Process.
2. Developing Your Financial Statements and Plans.
3. Preparing Your Taxes.
Part II: MANAGING BASIC ASSETS.
4. Managing Your Cash and Savings.
5. Making Automobile and Housing
Decisions. Part III: MANAGING
CREDIT.
6. Using Credit.
7. Using Consumer Loans.
Part IV: MANAGING INSURANCE NEEDS.
8. Insuring Your Life.
9. Insuring Your Health.
10. Protecting Your Property.
Part V: MANAGING INVESTMENTS.
11. Investment Planning.
12. Investing in Stocks and Bonds.
13. Investing in Mutual Funds and Real
Estate. Part VI: RETIREMENT AND
ESTATE PLANNING.
14. Planning for Retirement.
15. Preserving Your Estate.
StudyNexa ‐ Stuvia | Page 2 of 51
, STUDY NOTES & REFERENCE GUIDE
Chapter 1
Understanding the Financial Planning Process
How Will This Affect Me?
The heart of financial planning is making sure your values line up with how you spend
and save. That means knowing where you are financially and planning on how to get
where you want to be in the future no matter what life throws at you. For example, how
should your plan handle the projection that Social Security costs may exceed
revenues by 2035? And what if the government decides to raise tax rates to help
cover the federal deficit? An informed financial plan should reflect such uncertainties
and more.
This chapter overviews the financial planning process and explains its context. Topics
include how financial plans change to accommodate your current stage in life and
the role that financial planners can play in helping you achieve your objectives. After
reading this chapter you will have a good perspective on how to organize your
overall personal financial plan.
LEARNING GOALS
LG1 Identify the benefits of using personal financial planning techniques to manage
your finances.
Key concept in this section is the planning model as displayed in Exhibit 1.1. Your standard of
living is greatly impacted by your spending habits and your commitment to saving. Your
spending is measured by your propensity to consume. Wealth is the total value of all
propertyyou own less the amount that you owe to others.
ACTIVITY: Ask the students to assume that they have just inherited $100,000. What
will youdo with the money? Write down three ways you will spend or use the money.
StudyNexa ‐ Stuvia | Page 3 of 51
, STUDY NOTES & REFERENCE GUIDE
Ask the students to share one item with the class and record what they say so that the
entire class can reflect on the answers. Hopefully, at least a few will mention
investing even if only $10,000 of the amount. Use their answers to discuss taking care
of current needs versus future needs.
Focus on their propensity to consume and its impact on accumulating wealth. Point out
the Financial Planning Tip, ―Be SMART in Planning Your Financial Goals.‖
Use Exhibit 1.2 to show how the average person earns and spends their money and
Exhibit 1.6 to help the student identify where they are now.
LG2 Describe the personal financial planning process and define your goals.
Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless;
Planning is priceless‖. The process of planning allows you to focus on the issues that
are most important and to be ready when things change.
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important
is defining your financial goals. Exhibit 1.6 lists goals by age to demonstrate how
goals change over time. Use the examples in Exhibit 1.5 to ask students if the
assumptions are realistic. Yes,the answer is in the exhibit, but many will not have read
chapter at this point. For your use, theassumptions are:
Assumption 1: Saving a few thousand dollars a year should provide enough to fund
my child‘s college Education.
Assumption 2: An emergency fund lasting 3 months should be adequate.
Assumption 3: I will be able to retire at 65 and should have plenty to live on in
retirement. Assumption 4: I‘m relying on the rule of thumb that I will need only
70 percent of my pre- retirement income to manage nicely in retirement.
There are several worksheets in the book. Worksheet 1.1 gives the student a format
to write down their Personal Financial Goals. There is power in writing down goals
[and most any other plan]. Recording the goal and then reviewing three months later
will help you to keep focus on the goal.
LG3 Explain the life cycle of financial plans, their role in achieving your
financial goals, how to deal with special planning concerns, and the use of
professional financial planners.
Exhibit 1.7 can help focus the attention on how goals differ between the various
stages of life. Section 1-3b lists various decisions that you will have to make over your
life. The section 1-3c addresses Special Planning Concerns. Worksheet 1.2 focuses
on the financial benefit to the family of the second income. If the second income is
from a minimum wage job, it may not be a good financial decision. Of course having a
job, even a minimum wage job, may give the person psychic income that will override
the financial impact.
While perhaps off topic, I recall a high school science teacher who was a smoker.
He walked through the amount of money he spent on purchasing tobacco products.
That computation had a
StudyNexa ‐ Stuvia | Page 4 of 51
SOLUTION MANUAL
Personal Financial Planning,16th
Edition
by Randy Billingsley, Lawrence J. Gitman, Chapters 1 - 15, Complete
StudyNexa ‐ Stuvia | Page 1 of 51
, STUDY NOTES & REFERENCE GUIDE
Table of Contents
Part I: FOUNDATIONS OF FINANCIAL PLANNING.
1. Understanding the Financial Planning Process.
2. Developing Your Financial Statements and Plans.
3. Preparing Your Taxes.
Part II: MANAGING BASIC ASSETS.
4. Managing Your Cash and Savings.
5. Making Automobile and Housing
Decisions. Part III: MANAGING
CREDIT.
6. Using Credit.
7. Using Consumer Loans.
Part IV: MANAGING INSURANCE NEEDS.
8. Insuring Your Life.
9. Insuring Your Health.
10. Protecting Your Property.
Part V: MANAGING INVESTMENTS.
11. Investment Planning.
12. Investing in Stocks and Bonds.
13. Investing in Mutual Funds and Real
Estate. Part VI: RETIREMENT AND
ESTATE PLANNING.
14. Planning for Retirement.
15. Preserving Your Estate.
StudyNexa ‐ Stuvia | Page 2 of 51
, STUDY NOTES & REFERENCE GUIDE
Chapter 1
Understanding the Financial Planning Process
How Will This Affect Me?
The heart of financial planning is making sure your values line up with how you spend
and save. That means knowing where you are financially and planning on how to get
where you want to be in the future no matter what life throws at you. For example, how
should your plan handle the projection that Social Security costs may exceed
revenues by 2035? And what if the government decides to raise tax rates to help
cover the federal deficit? An informed financial plan should reflect such uncertainties
and more.
This chapter overviews the financial planning process and explains its context. Topics
include how financial plans change to accommodate your current stage in life and
the role that financial planners can play in helping you achieve your objectives. After
reading this chapter you will have a good perspective on how to organize your
overall personal financial plan.
LEARNING GOALS
LG1 Identify the benefits of using personal financial planning techniques to manage
your finances.
Key concept in this section is the planning model as displayed in Exhibit 1.1. Your standard of
living is greatly impacted by your spending habits and your commitment to saving. Your
spending is measured by your propensity to consume. Wealth is the total value of all
propertyyou own less the amount that you owe to others.
ACTIVITY: Ask the students to assume that they have just inherited $100,000. What
will youdo with the money? Write down three ways you will spend or use the money.
StudyNexa ‐ Stuvia | Page 3 of 51
, STUDY NOTES & REFERENCE GUIDE
Ask the students to share one item with the class and record what they say so that the
entire class can reflect on the answers. Hopefully, at least a few will mention
investing even if only $10,000 of the amount. Use their answers to discuss taking care
of current needs versus future needs.
Focus on their propensity to consume and its impact on accumulating wealth. Point out
the Financial Planning Tip, ―Be SMART in Planning Your Financial Goals.‖
Use Exhibit 1.2 to show how the average person earns and spends their money and
Exhibit 1.6 to help the student identify where they are now.
LG2 Describe the personal financial planning process and define your goals.
Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless;
Planning is priceless‖. The process of planning allows you to focus on the issues that
are most important and to be ready when things change.
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important
is defining your financial goals. Exhibit 1.6 lists goals by age to demonstrate how
goals change over time. Use the examples in Exhibit 1.5 to ask students if the
assumptions are realistic. Yes,the answer is in the exhibit, but many will not have read
chapter at this point. For your use, theassumptions are:
Assumption 1: Saving a few thousand dollars a year should provide enough to fund
my child‘s college Education.
Assumption 2: An emergency fund lasting 3 months should be adequate.
Assumption 3: I will be able to retire at 65 and should have plenty to live on in
retirement. Assumption 4: I‘m relying on the rule of thumb that I will need only
70 percent of my pre- retirement income to manage nicely in retirement.
There are several worksheets in the book. Worksheet 1.1 gives the student a format
to write down their Personal Financial Goals. There is power in writing down goals
[and most any other plan]. Recording the goal and then reviewing three months later
will help you to keep focus on the goal.
LG3 Explain the life cycle of financial plans, their role in achieving your
financial goals, how to deal with special planning concerns, and the use of
professional financial planners.
Exhibit 1.7 can help focus the attention on how goals differ between the various
stages of life. Section 1-3b lists various decisions that you will have to make over your
life. The section 1-3c addresses Special Planning Concerns. Worksheet 1.2 focuses
on the financial benefit to the family of the second income. If the second income is
from a minimum wage job, it may not be a good financial decision. Of course having a
job, even a minimum wage job, may give the person psychic income that will override
the financial impact.
While perhaps off topic, I recall a high school science teacher who was a smoker.
He walked through the amount of money he spent on purchasing tobacco products.
That computation had a
StudyNexa ‐ Stuvia | Page 4 of 51
