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