Table
of Co
C
tents C
Part I: F
C C
UNDAT
ONS OF FINANCIAL PLANNING.
C C C
1. Understanding the Financial Planning Process.
C C C C C
,2. Developing Your Financial Statements and Plans.
C C C C C C
3. Preparing Your Taxes.
C C C
Part II: MANAGING BASIC ASSETS.
C C C C
4. Managing Your Cash and Savings.
C C C C C
5. Making Automobile and Housing Decisions.
C C C C C
Part III: MANAGING CREDIT.
C C C
6. Using Credit.
C C
7. Using Consumer Loans.
C C C
Part IV: MANAGING INSURANCE NEEDS.
C C C C
8. Insuring Your Life.
C C C
9. Insuring Your Health.
C C C
10. Protecting Your Property.
C C C
Part V: MANAGING INVESTMENTS.
C C C
11. Investment Planning.
C C
12. Investing in Stocks and Bonds.
C C C C C
13. Investing in Mutual Funds and Real Estate.
C C C C C C C
Part VI: RETIREMENT AND ESTATE PLANNING.
C C C C C
14. Planning for Retirement.
C C C
15. Preserving Your Estate.
C C C
Chapter 1 C
Understanding the Financial Planning Process C C C C
HowCWillCThisCAffectCMe?
TheCheartCofCfinancialCplanningCisCmakingCsureCyourCvaluesClineCupCwithChowCyouCspendCandCsave.CT
hatCmeansCknowingCwhereCyouCareCfinanciallyCandCplanningConChowCtoCgetCwhereCyouCwantCtoCbeC
inCtheCfutureCnoCmatterCwhatClifeCthrowsCatCyou.CForCexample,ChowCshouldCyourCplanChandleCtheCpr
,ojectionCthatCSocialCSecurityCcostsCmayCexceedCrevenuesCbyC2035?CAndCwhatCifCtheCgovernmentCd
ecidesCtoCraiseCtaxCratesCtoChelpCcoverCtheCfederalCdeficit?CAnCinformedCfinancialCplanCshouldCrefl
ectCsuchCuncertaintiesCandCmore.
ThisCchapterCoverviewsCtheCfinancialCplanningCprocessCandCexplainsCitsCcontext.CTopicsCincludeCho
wCfinancialCplansCchangeCtoCaccommodateCyourCcurrentCstageCinClifeCandCtheCroleCthatCfinancialCp
lannersCcanCplayCinChelpingCyouCachieveCyourCobjectives.CAfterCreadingCthisCchapterCyouCwillChav
eCaCgoodCperspectiveConChowCtoCorganizeCyourCoverallCpersonalCfinancialCplan.
LEARNING GOALS C
LG1CIdentifyCtheCbenefitsCofCusingCpersonalCfinancialCplanningCtechniquesCtoCmanageCyourCfi
nances.
KeyCconceptCinCthisCsectionCisCtheCplanningCmodelCasCdisplayedCinCExhibitC1.1.CYourCstandardCofClivi
ngCisCgreatlyCimpactedCbyCyourCspendingChabitsCandCyourCcommitmentCtoCsaving.CYourCspendingCisC
measuredCbyCyourCpropensityCtoCconsume.CWealthCisCtheCtotalCvalueCofCallCpropertyCyouCownCless
CtheCamountCthatC youCoweCtoCothers.
ACTIVITY:C AskCtheCstudentsCtoCassumeCthatCtheyChaveCjustCinheritedC$100,000.CWhatCwillCyouCdoC
withCtheCmoney?CWriteCdownCthreeCwaysCyouCwillCspendCorCuseCtheCmoney.
, AskCtheCstudentsCtoCshareConeCitemCwithCtheCclassCandCrecordCwhatCtheyCsayCsoCthatCtheCentireCclas
sCcanCreflectConCtheCanswers.CHopefully,CatCleastCaCfewCwillCmentionCinvestingCevenCifConlyC$10,00
0CofCtheCamount.C UseCtheirCanswersCtoCdiscussCtakingCcareCofCcurrentCneedsCversusCfutureCneeds.
FocusConCtheirCpropensityCtoCconsumeCandCitsCimpactConCaccumulatingCwealth.CPointCoutCtheCFinancia
lCPlanningCTip,C―BeCSMARTCinCPlanningCYourCFinancialCGoals.‖
UseCExhibitC1.2CtoCshowChowCtheCaverageCpersonCearnsCandCspendsCtheirCmoneyCandCExhibitC1.6Ct
oChelpCtheCstudentCidentifyCwhereCtheyCareCnow.
LG2CDescribeCtheCpersonalCfinancialCplanningCprocessCandCdefineCyourCgoals.
DwightCEisenhower,CarmyCgeneralCandCpresident,CisCquotedCasCsayingC ―PlansCareCuseless;CPlanningC
isCpriceless‖.CTheCprocessCofCplanningCallowsCyouCtoCfocusConCtheCissuesCthatCareCmostCimportantCan
dCtoCbeCreadyCwhenCthingsCchange.
ExhibitC1.3ClistsCtheCSixCStepCFinancialCPlanningCProcess.CTheCfirstCandCmostCimportantCisCdefiningC
yourCfinancialCgoals.CExhibitC1.6ClistsCgoalsCbyCageCtoCdemonstrateChowCgoalsCchangeCoverCtime.
CUseCtheCexamplesCinCExhibitC 1.5CtoCaskCstudentsCifCtheCassumptionsCareCrealistic.CYes,CtheCanswerCi
sCinCtheCexhibit,CbutCmanyCwillCnotChaveCreadCchapterCatCthisCpoint.CForCyourCuse,CtheCassumptionsC
are:
AssumptionC1:CSavingCaCfewCthousandCdollarsCaCyearCshouldCprovideCenoughCtoCfundCmyCchild‘sC
collegeCEducation.
AssumptionC2:CAnCemergencyCfundClastingC3CmonthsCshouldCbeCadequate.
AssumptionC3:CICwillCbeCableCtoCretireCatC65CandCshouldChaveCplentyCtoCliveConCinCretiremen
t.CAssumptionC4:CI‘mCrelyingConCtheCruleCofCthumbCthatCICwillCneedConlyC70CpercentCofCmyCpr
e-CretirementCincomeCtoCmanageCnicelyCinCretirement.
ThereCareCseveralCworksheetsCinCtheCbook.CWorksheetC1.1CgivesCtheCstudentCaCformatCtoCwriteCd
ownCtheirCPersonalCFinancialCGoals.CThereCisCpowerCinCwritingCdownCgoalsC[andCmostCanyCotherCpl
an].CRecordingCtheCgoalCandCthenCreviewingCthreeCmonthsClaterCwillChelpCyouCtoCkeepCfocusConCth
eCgoal.
LG3CExplainCtheClifeCcycleCofCfinancialCplans,CtheirCroleCinCachievingCyourCfinancialCgoals,Cho
wCtoCdealCwithCspecialCplanningCconcerns,CandCtheCuseCofCprofessionalCfinancialCplanners.
ExhibitC1.7CcanChelpCfocusCtheCattentionConChowCgoalsCdifferCbetweenCtheCvariousCstagesCofClife.CS
ectionC1-3bClistsCvariousCdecisionsCthatCyouCwillChaveCtoCmakeCoverCyourClife.CTheCsectionC1-
3cCaddressesCSpecialCPlanningCConcerns.CWorksheetC1.2CfocusesConCtheCfinancialCbenefitCtoCtheCfa
milyCofCtheCsecondCincome.CIfCtheCsecondCincomeCisCfromCaCminimumCwageCjob,CitCmayCnotCbeCaCgoo
dCfinancialCdecision.COfCcourseChavingCaCjob,CevenCaCminimumCwageCjob,CmayCgiveCtheCpersonCpsyc
hicCincomeCthatCwillCoverrideCtheCfinancialCimpact.
WhileCperhapsCoffCtopic,CICrecallCaChighCschoolCscienceCteacherCwhoCwasCaCsmoker.CHeCwalkedCthr
oughCtheCamountCofCmoneyCheCspentConCpurchasingCtobaccoCproducts.C ThatCcomputationChadCa
of Co
C
tents C
Part I: F
C C
UNDAT
ONS OF FINANCIAL PLANNING.
C C C
1. Understanding the Financial Planning Process.
C C C C C
,2. Developing Your Financial Statements and Plans.
C C C C C C
3. Preparing Your Taxes.
C C C
Part II: MANAGING BASIC ASSETS.
C C C C
4. Managing Your Cash and Savings.
C C C C C
5. Making Automobile and Housing Decisions.
C C C C C
Part III: MANAGING CREDIT.
C C C
6. Using Credit.
C C
7. Using Consumer Loans.
C C C
Part IV: MANAGING INSURANCE NEEDS.
C C C C
8. Insuring Your Life.
C C C
9. Insuring Your Health.
C C C
10. Protecting Your Property.
C C C
Part V: MANAGING INVESTMENTS.
C C C
11. Investment Planning.
C C
12. Investing in Stocks and Bonds.
C C C C C
13. Investing in Mutual Funds and Real Estate.
C C C C C C C
Part VI: RETIREMENT AND ESTATE PLANNING.
C C C C C
14. Planning for Retirement.
C C C
15. Preserving Your Estate.
C C C
Chapter 1 C
Understanding the Financial Planning Process C C C C
HowCWillCThisCAffectCMe?
TheCheartCofCfinancialCplanningCisCmakingCsureCyourCvaluesClineCupCwithChowCyouCspendCandCsave.CT
hatCmeansCknowingCwhereCyouCareCfinanciallyCandCplanningConChowCtoCgetCwhereCyouCwantCtoCbeC
inCtheCfutureCnoCmatterCwhatClifeCthrowsCatCyou.CForCexample,ChowCshouldCyourCplanChandleCtheCpr
,ojectionCthatCSocialCSecurityCcostsCmayCexceedCrevenuesCbyC2035?CAndCwhatCifCtheCgovernmentCd
ecidesCtoCraiseCtaxCratesCtoChelpCcoverCtheCfederalCdeficit?CAnCinformedCfinancialCplanCshouldCrefl
ectCsuchCuncertaintiesCandCmore.
ThisCchapterCoverviewsCtheCfinancialCplanningCprocessCandCexplainsCitsCcontext.CTopicsCincludeCho
wCfinancialCplansCchangeCtoCaccommodateCyourCcurrentCstageCinClifeCandCtheCroleCthatCfinancialCp
lannersCcanCplayCinChelpingCyouCachieveCyourCobjectives.CAfterCreadingCthisCchapterCyouCwillChav
eCaCgoodCperspectiveConChowCtoCorganizeCyourCoverallCpersonalCfinancialCplan.
LEARNING GOALS C
LG1CIdentifyCtheCbenefitsCofCusingCpersonalCfinancialCplanningCtechniquesCtoCmanageCyourCfi
nances.
KeyCconceptCinCthisCsectionCisCtheCplanningCmodelCasCdisplayedCinCExhibitC1.1.CYourCstandardCofClivi
ngCisCgreatlyCimpactedCbyCyourCspendingChabitsCandCyourCcommitmentCtoCsaving.CYourCspendingCisC
measuredCbyCyourCpropensityCtoCconsume.CWealthCisCtheCtotalCvalueCofCallCpropertyCyouCownCless
CtheCamountCthatC youCoweCtoCothers.
ACTIVITY:C AskCtheCstudentsCtoCassumeCthatCtheyChaveCjustCinheritedC$100,000.CWhatCwillCyouCdoC
withCtheCmoney?CWriteCdownCthreeCwaysCyouCwillCspendCorCuseCtheCmoney.
, AskCtheCstudentsCtoCshareConeCitemCwithCtheCclassCandCrecordCwhatCtheyCsayCsoCthatCtheCentireCclas
sCcanCreflectConCtheCanswers.CHopefully,CatCleastCaCfewCwillCmentionCinvestingCevenCifConlyC$10,00
0CofCtheCamount.C UseCtheirCanswersCtoCdiscussCtakingCcareCofCcurrentCneedsCversusCfutureCneeds.
FocusConCtheirCpropensityCtoCconsumeCandCitsCimpactConCaccumulatingCwealth.CPointCoutCtheCFinancia
lCPlanningCTip,C―BeCSMARTCinCPlanningCYourCFinancialCGoals.‖
UseCExhibitC1.2CtoCshowChowCtheCaverageCpersonCearnsCandCspendsCtheirCmoneyCandCExhibitC1.6Ct
oChelpCtheCstudentCidentifyCwhereCtheyCareCnow.
LG2CDescribeCtheCpersonalCfinancialCplanningCprocessCandCdefineCyourCgoals.
DwightCEisenhower,CarmyCgeneralCandCpresident,CisCquotedCasCsayingC ―PlansCareCuseless;CPlanningC
isCpriceless‖.CTheCprocessCofCplanningCallowsCyouCtoCfocusConCtheCissuesCthatCareCmostCimportantCan
dCtoCbeCreadyCwhenCthingsCchange.
ExhibitC1.3ClistsCtheCSixCStepCFinancialCPlanningCProcess.CTheCfirstCandCmostCimportantCisCdefiningC
yourCfinancialCgoals.CExhibitC1.6ClistsCgoalsCbyCageCtoCdemonstrateChowCgoalsCchangeCoverCtime.
CUseCtheCexamplesCinCExhibitC 1.5CtoCaskCstudentsCifCtheCassumptionsCareCrealistic.CYes,CtheCanswerCi
sCinCtheCexhibit,CbutCmanyCwillCnotChaveCreadCchapterCatCthisCpoint.CForCyourCuse,CtheCassumptionsC
are:
AssumptionC1:CSavingCaCfewCthousandCdollarsCaCyearCshouldCprovideCenoughCtoCfundCmyCchild‘sC
collegeCEducation.
AssumptionC2:CAnCemergencyCfundClastingC3CmonthsCshouldCbeCadequate.
AssumptionC3:CICwillCbeCableCtoCretireCatC65CandCshouldChaveCplentyCtoCliveConCinCretiremen
t.CAssumptionC4:CI‘mCrelyingConCtheCruleCofCthumbCthatCICwillCneedConlyC70CpercentCofCmyCpr
e-CretirementCincomeCtoCmanageCnicelyCinCretirement.
ThereCareCseveralCworksheetsCinCtheCbook.CWorksheetC1.1CgivesCtheCstudentCaCformatCtoCwriteCd
ownCtheirCPersonalCFinancialCGoals.CThereCisCpowerCinCwritingCdownCgoalsC[andCmostCanyCotherCpl
an].CRecordingCtheCgoalCandCthenCreviewingCthreeCmonthsClaterCwillChelpCyouCtoCkeepCfocusConCth
eCgoal.
LG3CExplainCtheClifeCcycleCofCfinancialCplans,CtheirCroleCinCachievingCyourCfinancialCgoals,Cho
wCtoCdealCwithCspecialCplanningCconcerns,CandCtheCuseCofCprofessionalCfinancialCplanners.
ExhibitC1.7CcanChelpCfocusCtheCattentionConChowCgoalsCdifferCbetweenCtheCvariousCstagesCofClife.CS
ectionC1-3bClistsCvariousCdecisionsCthatCyouCwillChaveCtoCmakeCoverCyourClife.CTheCsectionC1-
3cCaddressesCSpecialCPlanningCConcerns.CWorksheetC1.2CfocusesConCtheCfinancialCbenefitCtoCtheCfa
milyCofCtheCsecondCincome.CIfCtheCsecondCincomeCisCfromCaCminimumCwageCjob,CitCmayCnotCbeCaCgoo
dCfinancialCdecision.COfCcourseChavingCaCjob,CevenCaCminimumCwageCjob,CmayCgiveCtheCpersonCpsyc
hicCincomeCthatCwillCoverrideCtheCfinancialCimpact.
WhileCperhapsCoffCtopic,CICrecallCaChighCschoolCscienceCteacherCwhoCwasCaCsmoker.CHeCwalkedCthr
oughCtheCamountCofCmoneyCheCspentConCpurchasingCtobaccoCproducts.C ThatCcomputationChadCa
