SOLUTION
MANUAL
Personal Financial Planning,16th
Edition
by Randy Billingsley, Lawrence J. Gitman, Chapters 1 -
15, Complete
,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.
, 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.
, 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 assaying ―Plans
areuseless; 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
MANUAL
Personal Financial Planning,16th
Edition
by Randy Billingsley, Lawrence J. Gitman, Chapters 1 -
15, Complete
,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.
, 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.
, 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 assaying ―Plans
areuseless; 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
