Solution Manual for Personal Financial Planning, 16th Edition 2024 by Randy Billingsley, Lawrence J. Gitman, Verified

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Personal Financial Planning 15th Edition by Randy
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Billingsley, Lawrence J. Gitman, Michael D. Joehnk
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Understanding the gg gg




Financial Planning Process
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Chapter 1
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How Will This Affect Me?
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The heart of financial planning is making sure your values line up with how you spend and
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save. That means knowing where you are financially and planning on how to get where
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you want to be in the future no matter what life throws at you. For example, how should
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your plan handle the projection that Social Security costs may exceed revenues by 2035?
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And what if the government decides to raise tax rates to help cover the federal deficit?
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An informed financial plan should reflect such uncertainties and more.
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This chapter overviews the financial planning process and explains its context. Topics
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include how financial plans change to accommodate your current stage in life and the role
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that financial planners can play in helping you achieve your objectives. After reading this
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chapter you will have a good perspective on how to organize your overall personal
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financial plan.
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LEARNING GOALS gg




LG1 Identify the benefits of using personal financial planning techniques to manage
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your finances.
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Key concept in this section is the planning model as displayed in Exhibit 1.1. Your
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standard of living is greatly impacted by your spending habits and your commitment to
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saving. Your spending is measured by your propensity to consume. Wealth is the total
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value of all property you own less the amount that you owe to others.
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ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will
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you do with the money? Write down three ways you will spend or use the money.
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,Ask the students to share one item with the class and record what they say so that the entire
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class can reflect on the answers. Hopefully, at least a few will mention investing even if
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only $10,000 of the amount. Use their answers to discuss taking care of current needs
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versus future needs.
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Focus on their propensity to consume and its impact on accumulating wealth. Point out the
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Financial Planning Tip, ―Be SMART in Planning Your Financial Goals.‖
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Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit
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1.6 to help the student identify where they are now.
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LG2 Describe the personal financial planning process and define your goals.
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Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless;
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Planning is priceless‖. The process of planning allows you to focus on the issues that are
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most important and to be ready when things change.
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Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is
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defining your financial goals. Exhibit 1.6 lists goals by age to demonstrate how goals
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change over time. Use the examples in Exhibit 1.5 to ask students if the assumptions are
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realistic. Yes, the answer is in the exhibit, but many will not have read chapter at this
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point. For your use, the assumptions are:
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Assumption 1: Saving a few thousand dollars a year should provide enough to fund my
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child‘s college Education.
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Assumption 2: An emergency fund lasting 3 months should be adequate.
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Assumption 3: I will be able to retire at 65 and should have plenty to live on in
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retirement. Assumption 4: I‘m relying on the rule of thumb that I will need only 70
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percent of my pre- retirement income to manage nicely in retirement.
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There are several worksheets in the book. Worksheet 1.1 gives the student a format to
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write down their Personal Financial Goals. There is power in writing down goals [and most
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any other plan]. Recording the goal and then reviewing three months later will help you
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to keep focus on the goal.
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LG3 Explain the life cycle of financial plans, their role in achieving your financial
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goals, how to deal with special planning concerns, and the use of professional
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financial planners.
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Exhibit 1.7 can help focus the attention on how goals differ between the various stages of
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life. Section 1-3b lists various decisions that you will have to make over your life. The
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section 1-3c addresses Special Planning Concerns. Worksheet 1.2 focuses on the financial
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benefit to the family of the second income. If the second income is from a minimum wage
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job, it may not be a good financial decision. Of course having a job, even a minimum wage
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job, may give the person psychic income that will override the financial impact.
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While perhaps off topic, I recall a high school science teacher who was a smoker. He
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walked through the amount of money he spent on purchasing tobacco products. That
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computation had a
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, lot to do with my decision to not smoke. How this relates to the course is that this is an
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illustration of how the financial impact of a decision can drive the decision.
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LG4 Examine the economic environment’s influence on personal financial planning.
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For older folks, the financial crisis of 2008-2009 is fresh in our memory. To the student of
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2021, that crisis is more of history than life. If you can share a war story on how you
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were personally impacted, it will help bring the impact of the world economy on financial
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plans to life. The book speaks how to manage this type of crisis, but you had to go
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through it to really understand the impact it had.
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The value of professional advice is greatly understated. If by talking to a professional you
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can prevent making a mistake -- that can be of a great value. Section 1-3e speaks to the
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use of professional financial planners. Exhibit 1.9 lists out the various certifications that
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planners have.
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Economic or business cycles are real. Perhaps the most useful thing about the cycles is the
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knowledge that if things are bad, you know they will get better. Of course, when life is
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good, you know that the bad cycle will come around again. Thus, financial planning
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requires saving in the good times for the bad times. See the ―Test Yourself‖ question 1-17
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for a short discussion of business cycles.
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The power of compounding is rarely understood. Exhibit 1.8 shows how the amount
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$10,000 will grow over time. The longer the investment stays invested, the greater the
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amount – the power of compound interest.
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LG5 Evaluate the impact of age, education, and geographic location on personal income.
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Exhibit 1.12 says it all. gg gg gg gg




LG6 Understand the importance of career choices and their relationship to personal
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financial planning.
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Exhibit 1.13 shows that the choice of a college major has a financial impact. Of course
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money cannot buy happiness, but having a bit helps. If you really want to be an
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elementary school teacher, you must recognize that you will not have as much wealth as a
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lawyer or financial analyst.
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The summary of the learning goals at the end of the chapter should aid the student in
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reviewing the chapter when exam time comes. It will be useful to point out to the
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student how to use this material.
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Link to Solutions to Financial Planning Exercises
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Pre-tests