SOLUTION MANUAL Personal Financial Planning, 16th Edition By BILLINGSLEY, GITMAN Chapters 1 - 15, Completed

SOLUTION MANUAL
Personal Financial Planning, 16th Edition
by Billingsley, Gitman, Chapters 1 - 15, Complete




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 r




Understanding the Financial Planning Process r r r r

,HowrWillrThisrAffectrMe?
Therheartrofrfinancialrplanningrisrmakingrsureryourrvaluesrlineruprwithrhowryourspendrandrsave.rThatrme
ansrknowingrwhereryourarerfinanciallyrandrplanningronrhowrtorgetrwhereryourwantrtorberinrtherfuturerno
rmatterrwhatrliferthrowsratryou.rForrexample,rhowrshouldryourrplanrhandlertherprojectionrthatrSocialrSe

curityrcostsrmayrexceedrrevenuesrbyr2035?rAndrwhatrifrthergovernmentrdecidesrtorraisertaxrratesrtorhe
lprcoverrtherfederalrdeficit?rAnrinformedrfinancialrplanrshouldrreflectrsuchruncertaintiesrandrmore.

Thisrchapterroverviewsrtherfinancialrplanningrprocessrandrexplainsritsrcontext.rTopicsrincluderhowrfina
ncialrplansrchangertoraccommodateryourrcurrentrstagerinrliferandrtherrolerthatrfinancialrplannersrcanr
playrinrhelpingryourachieveryourrobjectives.rAfterrreadingrthisrchapterryourwillrhaverargoodrperspect
iveronrhowrtororganizeryourroverallrpersonalrfinancialrplan.

LEARNING GOALS r



LG1rIdentifyrtherbenefitsrofrusingrpersonalrfinancialrplanningrtechniquesrtormanageryourrfina
nces.

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eatlyrimpactedrbyryourrspendingrhabitsrandryourrcommitmentrtorsaving.rYourrspendingrisrmeasuredrbyr
yourrpropensityrtorconsume.rWealthrisrthertotalrvaluerofrallrpropertyryourownrlessrtheramountrthatryo
urowertorothers.

ACTIVITY:r Askrtherstudentsrtorassumerthatrtheyrhaverjustrinheritedr$100,000.rWhatrwillryourdorwithrth
ermoney?rWriterdownrthreerwaysryourwillrspendrorruserthermoney.

, Askrtherstudentsrtorshareroneritemrwithrtherclassrandrrecordrwhatrtheyrsayrsorthatrtherentirerclassrcanrrefl
ectronrtheranswers.rHopefully,ratrleastrarfewrwillrmentionrinvestingrevenrifronlyr$10,000rofrtheramount.
r Usertheirranswersrtordiscussrtakingr carerofrcurrentr needsrversusrfuturerneeds.

Focusronrtheirrpropensityrtorconsumerandritsrimpactronraccumulatingrwealth.rPointroutrtherFinancialrPlan
ningrTip,r―BerSMARTrinrPlanningrYourrFinancialrGoals.‖
UserExhibitr1.2rtorshowrhowrtheraveragerpersonrearnsrandrspendsrtheirrmoneyrandrExhibitr1.6rtorhelprt
herstudentridentifyrwherertheyrarernow.

LG2rDescribertherpersonalrfinancialrplanningrprocessrandrdefineryourrgoals.

DwightrEisenhower,rarmyrgeneralrandrpresident,risrquotedrasrsayingr ―Plansrareruseless;rPlanningrisrpric
eless‖.rTherprocessrofrplanningrallowsryourtorfocusronrtherissuesrthatrarermostrimportantrandrtorberread
yrwhenrthingsrchange.

Exhibitr1.3rlistsrtherSixrSteprFinancialrPlanningrProcess.rTherfirstrandrmostrimportantrisrdefiningryourrfi
nancialrgoals.rExhibitr1.6rlistsrgoalsrbyragertordemonstraterhowrgoalsrchangeroverrtime.rUsertherexa
mplesrinrExhibitr1.5rtoraskrstudentsrifrtherassumptionsrarerrealistic.rYes,rtheranswerrisrinrtherexhibit,rbutr
manyrwillrnotrhaverreadrchapterratrthisrpoint.rForryourruse,rtherassumptionsrare:

Assumptionr1:rSavingrarfewrthousandrdollarsraryearrshouldrproviderenoughrtorfundrmyrchild‘srcolleg
erEducation.
Assumptionr2:rAnremergencyrfundrlastingr3rmonthsrshouldrberadequate.
Assumptionr3:rIrwillrberablertorretireratr65randrshouldrhaverplentyrtorliveronrinrretirement.rAssu
mptionr4:rI‘mrrelyingronrtherrulerofrthumbrthatrIrwillrneedronlyr70rpercentrofrmyrpre-
rretirementr incomertor manager nicelyrinrretirement.



Thererarerseveralrworksheetsrinrtherbook.rWorksheetr1.1rgivesrtherstudentrarformatrtorwriterdownrthe
irrPersonalrFinancialrGoals.rThererisrpowerrinrwritingrdownrgoalsr[andrmostranyrotherrplan].rRecording
rthergoalrandrthenrreviewingrthreermonthsrlaterrwillrhelpryourtorkeeprfocusronrthergoal.



LG3rExplainrtherlifercyclerofrfinancialrplans,rtheirrrolerinrachievingryourrfinancialrgoals,rhowrto
rdealrwithrspecialrplanningrconcerns,randrtheruserofr professionalrfinancialrplanners.



Exhibitr1.7rcanrhelprfocusrtherattentionronrhowrgoalsrdifferrbetweenrthervariousrstagesrofrlife.rSectionr1
-3brlistsrvariousrdecisionsrthatryourwillrhavertormakeroverryourrlife.rThersectionr1-
3craddressesrSpecialrPlanningrConcerns.rWorksheetr1.2rfocusesronrtherfinancialrbenefitrtortherfamilyro
frthersecondrincome.rIfrthersecondrincomerisrfromrarminimumrwagerjob,ritrmayrnotrberargoodrfinancialrde
cision.rOfrcourserhavingrarjob,revenrarminimumrwagerjob,rmayrgivertherpersonrpsychicrincomerthatrwillro
verridertherfinancialrimpact.

Whilerperhapsroffrtopic,rIrrecallrarhighrschoolrsciencerteacherrwhorwasrarsmoker.rHerwalkedrthroughrth
eramountrofrmoneyrherspentronrpurchasingrtobaccorproducts.r Thatrcomputationrhadra