Solution Manual for Personal Financial Planning
oo oo oo oo oo oo
oo 15th Edition by Randy Billingsley, Lawrence J.
oo oo oo oo oo oo oo
oo Gitman, Michael D. Joehnk
oo oo oo
,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
Understanding the oo oo
Financial PlanningProcess
oo oo o
Chapter 1
oo oo
How Will This Affect Me?
oo oo oo oo
The heart of financial planning is making sure your values line up with how you spend and
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
save. That means knowing where you are financially and planning on how to get where you
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
want to be in the future no matter what life throws at you. For example, how should your plan
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
handle the projection that Social Security costs may exceed revenues by 2035? And what if the
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
government decides to raise tax rates to help cover the federal deficit? An informed financial
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
plan should reflect such uncertainties and more.
oo oo oo oo oo oo oo
This chapter overviews the financial planning process and explains its context. Topics include
oo oo oo oo oo oo oo oo oo oo oo oo
how financial plans change to accommodate your current stage in life and the role that
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
financial planners can play in helping you achieve your objectives. After reading this chapter
oo oo oo oo oo oo oo oo oo oo oo oo oo oo
you will have a good perspective on how to organize your overall personal financial plan.
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
LEARNING GOALS oo
LG1 Identify the benefits of using personal financial planning techniques to manage your
oo oo oo oo oo oo oo oo oo oo oo oo
finances.
oo
Key concept in this section is the planning model as displayed in Exhibit 1.1. Your standard of
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
living is greatly impacted by your spending habits and your commitment to saving. Your
oo oo oo oo oo oo oo oo oo oo oo oo oo oo
spending is measured by your propensity to consume. Wealth is the total value of all
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
property you own less the amount that you owe to others.
oo oo oo oo oo oo oo oo oo oo oo
ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will you
o o oo oo oo oo oo oo oo oo oo oo oo oo oo
do with the money? Write down three ways you will spend or use the money.
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
,Ask the students to share one item with the class and record what they say so that the entire
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
class can reflect on the answers. Hopefully, at least a few will mention investing even if only
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
$10,000 of the amount. Use their answers to discuss taking care of current needs versus
oo oo oo oo o o oo oo oo oo oo oo oo oo oo oo
future needs.
oo oo
Focus on their propensity to consume and its impact on accumulating wealth. Point out the
oo oo oo oo oo oo oo oo oo oo oo oo oo oo
Financial Planning Tip, ―Be SMART in Planning Your Financial Goals.‖
oo oo oo oo oo oo oo oo oo oo
Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit 1.6
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
to help the student identify where they are now.
oo oo oo oo oo oo oo oo oo
LG2 Describe the personal financial planning process and define your goals.
oo oo oo oo oo oo oo oo oo oo
Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless; Planning
oo oo oo oo oo oo oo oo oo oo oo oo oo
is priceless‖. The process of planning allows you to focus on the issues that are most
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
important and to be ready when things change.
oo oo oo oo oo oo oo oo
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is
oo oo oo oo oo oo oo oo oo oo oo oo oo oo
defining your financial goals. Exhibit 1.6 lists goals by age to demonstrate how goals change
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
over time. Use the examples in Exhibit 1.5 to ask students if the assumptions are realistic. Yes,
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
the answer is in the exhibit, but many will not have read chapter at this point. For your use,
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
the assumptions are:
oo oo oo
Assumption 1: Saving a few thousand dollars a year should provide enough to fund my
oo oo oo oo oo oo oo oo oo oo oo oo oo oo
child‘s college Education.
oo oo oo
Assumption 2: An emergency fund lasting 3 months should be adequate. oo oo oo oo oo oo oo oo oo oo
Assumption 3: I will be able to retire at 65 and should have plenty to live on in oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
retirement. Assumption 4: I‘m relying on the rule of thumb that I will need only 70
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
percent of my pre- retirement income to manage nicely in retirement.
oo oo oo oo oo oo oo oo oo oo oo
There are several worksheets in the book. Worksheet 1.1 gives the student a format to write
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
down their Personal Financial Goals. There is power in writing down goals [and most any other
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
plan]. Recording the goal and then reviewing three months later will help you to keep focus
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
on the goal.
oo oo oo
LG3 Explain the life cycle of financial plans, their role in achieving your financial
oo oo oo oo oo oo oo oo oo oo oo oo oo
goals, how to deal with special planning concerns, and the use of professional financial
oo oo oo oo oo oo oo oo oo oo oo oo oo oo
planners.
oo
Exhibit 1.7 can help focus the attention on how goals differ between the various stages of life.
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
Section 1-3b lists various decisions that you will have to make over your life. The section 1-
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
3c addresses Special Planning Concerns. Worksheet 1.2 focuses on the financial benefit to the
oo oo oo oo oo oo oo oo oo oo oo oo oo
family of the second income. If the second income is from a minimum wage job, it may not be
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
a good financial decision. Of course having a job, even a minimum wage job, may give the
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
person psychic income that will override the financial impact.
oo oo oo oo oo oo oo oo oo
While perhaps off topic, I recall a high school science teacher who was a smoker. He walked
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
through the amount of money he spent on purchasing tobacco products. That computation
oo oo oo oo oo oo oo oo oo oo oo o o oo
had a
oo oo
, lot to do with my decision to not smoke. How this relates to the course is that this is an
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
illustration of how the financial impact of a decision can drive the decision.
oo oo oo oo oo oo oo oo oo oo oo oo oo
LG4 Examine the economic environment’s influence on personal financial planning.
oo oo oo oo oo oo oo oo oo
For older folks, the financial crisis of 2008-2009 is fresh in our memory. To the student of
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
2021, that crisis is more of history than life. If you can share a war story on how you were
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
personally impacted, it will help bring the impact of the world economy on financial plans to
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
life. The book speaks how to manage this type of crisis, but you had to go through it to really
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
understand the impact it had.
oo oo oo oo oo
The value of professional advice is greatly understated. If by talking to a professional you can
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
prevent making a mistake -- that can be of a great value. Section 1-3e speaks to the use of
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
professional financial planners. Exhibit 1.9 lists out the various certifications that planners
oo oo oo o o oo oo oo oo oo oo oo oo
have.
oo
Economic or business cycles are real. Perhaps the most useful thing about the cycles is the
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
knowledge that if things are bad, you know they will get better. Of course, when life is
oo oo oo oo oo oo oo oo oo oo oo oo o o oo oo oo oo
good, you know that the bad cycle will come around again. Thus, financial planning requires
oo oo oo oo oo oo oo oo oo oo oo o o oo oo oo
saving in the good times for the bad times. See the ―Test Yourself‖ question 1-17 for a short
oo oo oo oo oo oo oo oo oo o o oo oo oo oo oo oo oo oo
discussion of business cycles.
oo oo oo oo
The power of compounding is rarely understood. Exhibit 1.8 shows how the amount $10,000
oo oo oo oo oo oo oo oo oo oo oo oo oo
will grow over time. The longer the investment stays invested, the greater the amount – the
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
power of compound interest.
oo oo oo oo
LG5 Evaluate the impact of age, education, and geographic location on personal income.
oo oo oo oo oo oo oo oo oo oo oo oo
Exhibit 1.12 says it all. oo oo oo oo
LG6 Understand the importance of career choices and their relationship to personal
oo oo oo oo oo oo oo oo oo oo oo
financial planning.
oo oo
Exhibit 1.13 shows that the choice of a college major has a financial impact. Of course money
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
cannot buy happiness, but having a bit helps. If you really want to be an elementary school
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
teacher, you must recognize that you will not have as much wealth as a lawyer or financial
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
analyst.
oo
The summary of the learning goals at the end of the chapter should aid the student in
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
reviewing the chapter when exam time comes. It will be useful to point out to the student
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
how to use this material.
oo oo oo oo oo
Link to Solutions to Financial Planning Exercises
oo oo oo oo oo oo
Pre-tests
oo oo oo oo oo oo
oo 15th Edition by Randy Billingsley, Lawrence J.
oo oo oo oo oo oo oo
oo Gitman, Michael D. Joehnk
oo oo oo
,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
Understanding the oo oo
Financial PlanningProcess
oo oo o
Chapter 1
oo oo
How Will This Affect Me?
oo oo oo oo
The heart of financial planning is making sure your values line up with how you spend and
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
save. That means knowing where you are financially and planning on how to get where you
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
want to be in the future no matter what life throws at you. For example, how should your plan
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
handle the projection that Social Security costs may exceed revenues by 2035? And what if the
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
government decides to raise tax rates to help cover the federal deficit? An informed financial
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
plan should reflect such uncertainties and more.
oo oo oo oo oo oo oo
This chapter overviews the financial planning process and explains its context. Topics include
oo oo oo oo oo oo oo oo oo oo oo oo
how financial plans change to accommodate your current stage in life and the role that
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
financial planners can play in helping you achieve your objectives. After reading this chapter
oo oo oo oo oo oo oo oo oo oo oo oo oo oo
you will have a good perspective on how to organize your overall personal financial plan.
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
LEARNING GOALS oo
LG1 Identify the benefits of using personal financial planning techniques to manage your
oo oo oo oo oo oo oo oo oo oo oo oo
finances.
oo
Key concept in this section is the planning model as displayed in Exhibit 1.1. Your standard of
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
living is greatly impacted by your spending habits and your commitment to saving. Your
oo oo oo oo oo oo oo oo oo oo oo oo oo oo
spending is measured by your propensity to consume. Wealth is the total value of all
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
property you own less the amount that you owe to others.
oo oo oo oo oo oo oo oo oo oo oo
ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will you
o o oo oo oo oo oo oo oo oo oo oo oo oo oo
do with the money? Write down three ways you will spend or use the money.
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
,Ask the students to share one item with the class and record what they say so that the entire
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
class can reflect on the answers. Hopefully, at least a few will mention investing even if only
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
$10,000 of the amount. Use their answers to discuss taking care of current needs versus
oo oo oo oo o o oo oo oo oo oo oo oo oo oo oo
future needs.
oo oo
Focus on their propensity to consume and its impact on accumulating wealth. Point out the
oo oo oo oo oo oo oo oo oo oo oo oo oo oo
Financial Planning Tip, ―Be SMART in Planning Your Financial Goals.‖
oo oo oo oo oo oo oo oo oo oo
Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit 1.6
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
to help the student identify where they are now.
oo oo oo oo oo oo oo oo oo
LG2 Describe the personal financial planning process and define your goals.
oo oo oo oo oo oo oo oo oo oo
Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless; Planning
oo oo oo oo oo oo oo oo oo oo oo oo oo
is priceless‖. The process of planning allows you to focus on the issues that are most
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
important and to be ready when things change.
oo oo oo oo oo oo oo oo
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is
oo oo oo oo oo oo oo oo oo oo oo oo oo oo
defining your financial goals. Exhibit 1.6 lists goals by age to demonstrate how goals change
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
over time. Use the examples in Exhibit 1.5 to ask students if the assumptions are realistic. Yes,
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
the answer is in the exhibit, but many will not have read chapter at this point. For your use,
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
the assumptions are:
oo oo oo
Assumption 1: Saving a few thousand dollars a year should provide enough to fund my
oo oo oo oo oo oo oo oo oo oo oo oo oo oo
child‘s college Education.
oo oo oo
Assumption 2: An emergency fund lasting 3 months should be adequate. oo oo oo oo oo oo oo oo oo oo
Assumption 3: I will be able to retire at 65 and should have plenty to live on in oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
retirement. Assumption 4: I‘m relying on the rule of thumb that I will need only 70
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
percent of my pre- retirement income to manage nicely in retirement.
oo oo oo oo oo oo oo oo oo oo oo
There are several worksheets in the book. Worksheet 1.1 gives the student a format to write
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
down their Personal Financial Goals. There is power in writing down goals [and most any other
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
plan]. Recording the goal and then reviewing three months later will help you to keep focus
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
on the goal.
oo oo oo
LG3 Explain the life cycle of financial plans, their role in achieving your financial
oo oo oo oo oo oo oo oo oo oo oo oo oo
goals, how to deal with special planning concerns, and the use of professional financial
oo oo oo oo oo oo oo oo oo oo oo oo oo oo
planners.
oo
Exhibit 1.7 can help focus the attention on how goals differ between the various stages of life.
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
Section 1-3b lists various decisions that you will have to make over your life. The section 1-
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
3c addresses Special Planning Concerns. Worksheet 1.2 focuses on the financial benefit to the
oo oo oo oo oo oo oo oo oo oo oo oo oo
family of the second income. If the second income is from a minimum wage job, it may not be
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
a good financial decision. Of course having a job, even a minimum wage job, may give the
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
person psychic income that will override the financial impact.
oo oo oo oo oo oo oo oo oo
While perhaps off topic, I recall a high school science teacher who was a smoker. He walked
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
through the amount of money he spent on purchasing tobacco products. That computation
oo oo oo oo oo oo oo oo oo oo oo o o oo
had a
oo oo
, lot to do with my decision to not smoke. How this relates to the course is that this is an
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
illustration of how the financial impact of a decision can drive the decision.
oo oo oo oo oo oo oo oo oo oo oo oo oo
LG4 Examine the economic environment’s influence on personal financial planning.
oo oo oo oo oo oo oo oo oo
For older folks, the financial crisis of 2008-2009 is fresh in our memory. To the student of
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
2021, that crisis is more of history than life. If you can share a war story on how you were
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
personally impacted, it will help bring the impact of the world economy on financial plans to
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
life. The book speaks how to manage this type of crisis, but you had to go through it to really
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
understand the impact it had.
oo oo oo oo oo
The value of professional advice is greatly understated. If by talking to a professional you can
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
prevent making a mistake -- that can be of a great value. Section 1-3e speaks to the use of
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
professional financial planners. Exhibit 1.9 lists out the various certifications that planners
oo oo oo o o oo oo oo oo oo oo oo oo
have.
oo
Economic or business cycles are real. Perhaps the most useful thing about the cycles is the
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
knowledge that if things are bad, you know they will get better. Of course, when life is
oo oo oo oo oo oo oo oo oo oo oo oo o o oo oo oo oo
good, you know that the bad cycle will come around again. Thus, financial planning requires
oo oo oo oo oo oo oo oo oo oo oo o o oo oo oo
saving in the good times for the bad times. See the ―Test Yourself‖ question 1-17 for a short
oo oo oo oo oo oo oo oo oo o o oo oo oo oo oo oo oo oo
discussion of business cycles.
oo oo oo oo
The power of compounding is rarely understood. Exhibit 1.8 shows how the amount $10,000
oo oo oo oo oo oo oo oo oo oo oo oo oo
will grow over time. The longer the investment stays invested, the greater the amount – the
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
power of compound interest.
oo oo oo oo
LG5 Evaluate the impact of age, education, and geographic location on personal income.
oo oo oo oo oo oo oo oo oo oo oo oo
Exhibit 1.12 says it all. oo oo oo oo
LG6 Understand the importance of career choices and their relationship to personal
oo oo oo oo oo oo oo oo oo oo oo
financial planning.
oo oo
Exhibit 1.13 shows that the choice of a college major has a financial impact. Of course money
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
cannot buy happiness, but having a bit helps. If you really want to be an elementary school
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
teacher, you must recognize that you will not have as much wealth as a lawyer or financial
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
analyst.
oo
The summary of the learning goals at the end of the chapter should aid the student in
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
reviewing the chapter when exam time comes. It will be useful to point out to the student
oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo oo
how to use this material.
oo oo oo oo oo
Link to Solutions to Financial Planning Exercises
oo oo oo oo oo oo
Pre-tests
