Solution Manual for Personal Financial Planning 15
u u u u u u
h Edition by Randy Billingsley, Lawrence J. Gitman
u u u u u u u
Michael D. Joehnk
u u
,SOLUTIONu MANUALu FOR
Personal Financial Planning 15th Edition by RandyB
u u u u u u u
illingsley, Lawrence J. Gitman, Michael D. Joehnk
u u u u u u
UnderstandingutheuFinancialuPlanninguProcessuChapteru1
HowuWilluThisuAffectuMe?
Theuheartuofufinancialuplanninguisumakingusureuyouruvaluesulineuupuwithuhowuyouuspenduandusave.uT
hatumeansuknowinguwhereuyouuareufinanciallyuanduplanninguonuhowutougetuwhereuyouuwantutoubeuinut
heufutureunoumatteruwhatulifeuthrowsuatuyou.uForuexample,uhowushoulduyouruplanuhandleutheuprojecti
onuthatuSocialuSecurityucostsumayuexceedurevenuesubyu2035?uAnduwhatuifutheugovernmentudecidesut
ouraiseutaxuratesutouhelpucoverutheufederaludeficit?uAnuinformedufinancialuplanushouldureflectu suchuun
certaintiesuandumore.
Thisuchapteruoverviewsutheufinancialuplanninguprocessuanduexplainsuitsucontext.uTopicsuincludeuho
wufinancialuplansuchangeutouaccommodateuyourucurrentustageuinulifeuandutheuroleuthatufinancialupla
nnersucanuplayuinuhelpinguyouuachieveuyouruobjectives.uAfterureadinguthisuchapteruyouuwilluhaveuau
gooduperspectiveuonuhowutouorganizeuyouruoverallupersonalufinancialuplan.
LEARNING GOALS u
LG1uIdentifyutheubenefitsuofuusingupersonalufinancialuplanningutechniquesutoumanageuyourufinances.
KeyuconceptuinuthisusectionuisutheuplanningumodeluasudisplayeduinuExhibitu1.1.uYourustandarduofulivi
nguisugreatlyuimpactedubyuyouruspendinguhabitsuanduyourucommitmentutousaving.uYouruspendinguisu
measuredubyuyourupropensityutouconsume.uWealthuisutheutotaluvalueuofuallupropertyuyouuownulessut
heuamountuthatu youuoweutouothers.
, ACTIVITY:u Askutheustudentsutouassumeuthatutheyuhaveujustuinheritedu$100,000.uWhatuwilluyouudo
uwithutheu money? uWriteudownuthreeuwaysu youuwilluspenduoruuseutheu money.
Askutheustudentsutoushareuoneuitemuwithutheuclassuandurecorduwhatutheyusayusouthatutheuentireuclassuca
nureflectuonutheuanswers.uHopefully,uatuleastuaufewuwillumentionuinvestinguevenuifuonlyu$10,000uofuth
euamount.u Useutheiruanswersutoudiscussutakingucareuofucurrentuneedsuversusufutureuneeds.
Focusuonutheirupropensityutouconsumeuanduitsuimpactuonuaccumulatinguwealth.uPointuoututheuFinanci
aluPlanninguTip,u―BeuSMARTuinuPlanningu YouruFinancialuGoals.‖
UseuExhibitu1.2utoushowuhowutheuaverageupersonuearnsuanduspendsutheirumoneyuanduExhibitu1.6utouh
elputheustudentuidentifyuwhereutheyuareunow.
LG2uDescribeutheupersonalufinancialuplanninguprocessuandudefineuyourugoals.
DwightuEisenhower,uarmyugeneraluandupresident,uisuquoteduasusayingu ―Plansuareuuseless;uPlanning
uisupriceless‖.uTheuprocess uofuplanninguallowsu youutoufocusuonutheuissuesuthatuareumostuimportantuan
dutoubeureadyuwhenuthingsuchange.
Exhibitu1.3ulistsutheuSixuStepuFinancialuPlanninguProcess.uTheufirstuandumostuimportantuisudefining
uyourufinancialugoals.uExhibitu1.6ulistsugoalsubyuageutoudemonstrateuhowugoalsuchangeuoverutime.u
UseutheuexamplesuinuExhibitu1.5utouaskustudentsuifutheuassumptionsuareurealistic.uYes,utheuansweruisu
inutheuexhibit,ubutumanyuwillunotuhaveureaduchapteruatuthisupoint.uForuyouruuse,utheuassumptionsuare
:
Assumptionu1:uSavinguaufewuthousandudollarsuauyearushoulduprovideuenoughutoufundumyuchild‘suc
ollegeuEducation.
Assumptionu2:uAnuemergencyufundulastingu3umonthsushouldubeuadequate.
Assumptionu3:uIuwillubeuableutouretireuatu65uandushoulduhaveuplentyutouliveuonuinuretirement.uA
ssumptionu4:uI‘murelyinguonutheuruleuofuthumbuthatuIuwilluneeduonlyu70upercentuofumyupre-
uretirementu incomeutou manageu nicelyuinuretirement.
Thereuareuseveraluworksheetsuinutheubook.uWorksheetu1.1ugivesutheustudentuauformatutouwriteudow
nutheiruPersonaluFinancialuGoals.uThereuisupoweruinuwritingudownugoalsu[andumostuanyuotheruplan].u
Recordingutheugoaluanduthenureviewinguthreeumonthsulateruwilluhelpuyouutoukeepufocusuonutheugoal.
,LG3uExplainutheulifeucycleuofufinancialuplans,utheiruroleuinuachievinguyourufinancialugoals,uhowutoudealuwithuspeci
aluplanninguconcerns,uandutheuuseuofuprofessionalufinancialuplanners.
Exhibitu1.7ucanuhelpufocusutheuattentionuonuhowugoalsudifferubetweenutheuvariousustagesuofulife.uSect
ionu1-3bulistsuvariousudecisionsuthatuyouuwilluhaveutoumakeuoveruyourulife.uTheusectionu1-
3cuaddressesuSpecialuPlanninguConcerns.uWorksheetu1.2ufocusesuonutheufinancialubenefitutoutheufam
ilyuofutheuseconduincome.uIfutheuseconduincomeuisufromuauminimumuwageujob,uitumayunotubeuaugooduf
inancialudecision.uOfucourseuhavinguaujob,uevenuauminimumuwageujob,umayugiveutheupersonupsychicui
ncomeuthatuwilluoverrideutheufinancialuimpact.
Whileuperhapsuoffutopic,uIurecalluauhighuschooluscienceuteacheruwhouwasuausmoker.uHeuwalkeduthrou
ghutheuamountuofumoneyuheuspentuonupurchasingutobaccouproducts.u Thatucomputationuhadua
lotutoudouwithumyudecisionutounotusmoke.uHowuthisurelatesutoutheucourseuisuthatuthisuisuanuillustrationu
ofuhowutheufinancialuimpactuofuaudecisionucanudriveutheudecision.
LG4uExamineutheueconomicuenvironment’suinfluenceuonupersonalufinancialuplanning.
Foruolderufolks,utheufinancialucrisisuofu2008-
2009uisufreshuinuourumemory.uToutheustudentuofu2021,uthatucrisisuisumoreuofuhistoryuthanulife.uIfuyouuc
anushareuauwarustoryuonuhowuyouuwereupersonallyuimpacted,uituwilluhelpubringutheuimpactuofutheuwor
ldueconomyuonufinancialuplansutoulife.uTheubookuspeaksuhowutoumanageuthisutypeuofucrisis,ubutuyouuh
adutougouthroughuitutoureallyuunderstandutheuimpactu ituhad.
Theuvalueuofuprofessionaluadviceuisugreatlyuunderstated.uIfubyutalkingutouauprofessionaluyouucanuprev
entumakinguaumistakeu--uthatucanubeuofuaugreatuvalue.uSectionu1-
3euspeaksutoutheuuseuofuprofessionalufinancialuplanners.u Exhibitu1.9ulistsuoututheuvariousucertificatio
nsuthatuplannersuhave.
Economicuorubusinessucyclesuareureal.uPerhapsutheumostuusefuluthinguaboututheucyclesuisutheuknowle
dgeuthatuifuthingsuareubad,uyouuknowutheyuwillugetubetter.u Ofucourse,uwhenulifeuisugood,uyouuknowut
hatutheubaducycleuwillucomeuarounduagain.u Thus,ufinancialuplanningurequiresusavinguinutheugoodutim
esuforutheubadutimes.uu Seeutheu―Testu Yourself‖uquestionu1-
17uforuaushortu discussionuofubusinessucycles.
u u u u u u
h Edition by Randy Billingsley, Lawrence J. Gitman
u u u u u u u
Michael D. Joehnk
u u
,SOLUTIONu MANUALu FOR
Personal Financial Planning 15th Edition by RandyB
u u u u u u u
illingsley, Lawrence J. Gitman, Michael D. Joehnk
u u u u u u
UnderstandingutheuFinancialuPlanninguProcessuChapteru1
HowuWilluThisuAffectuMe?
Theuheartuofufinancialuplanninguisumakingusureuyouruvaluesulineuupuwithuhowuyouuspenduandusave.uT
hatumeansuknowinguwhereuyouuareufinanciallyuanduplanninguonuhowutougetuwhereuyouuwantutoubeuinut
heufutureunoumatteruwhatulifeuthrowsuatuyou.uForuexample,uhowushoulduyouruplanuhandleutheuprojecti
onuthatuSocialuSecurityucostsumayuexceedurevenuesubyu2035?uAnduwhatuifutheugovernmentudecidesut
ouraiseutaxuratesutouhelpucoverutheufederaludeficit?uAnuinformedufinancialuplanushouldureflectu suchuun
certaintiesuandumore.
Thisuchapteruoverviewsutheufinancialuplanninguprocessuanduexplainsuitsucontext.uTopicsuincludeuho
wufinancialuplansuchangeutouaccommodateuyourucurrentustageuinulifeuandutheuroleuthatufinancialupla
nnersucanuplayuinuhelpinguyouuachieveuyouruobjectives.uAfterureadinguthisuchapteruyouuwilluhaveuau
gooduperspectiveuonuhowutouorganizeuyouruoverallupersonalufinancialuplan.
LEARNING GOALS u
LG1uIdentifyutheubenefitsuofuusingupersonalufinancialuplanningutechniquesutoumanageuyourufinances.
KeyuconceptuinuthisusectionuisutheuplanningumodeluasudisplayeduinuExhibitu1.1.uYourustandarduofulivi
nguisugreatlyuimpactedubyuyouruspendinguhabitsuanduyourucommitmentutousaving.uYouruspendinguisu
measuredubyuyourupropensityutouconsume.uWealthuisutheutotaluvalueuofuallupropertyuyouuownulessut
heuamountuthatu youuoweutouothers.
, ACTIVITY:u Askutheustudentsutouassumeuthatutheyuhaveujustuinheritedu$100,000.uWhatuwilluyouudo
uwithutheu money? uWriteudownuthreeuwaysu youuwilluspenduoruuseutheu money.
Askutheustudentsutoushareuoneuitemuwithutheuclassuandurecorduwhatutheyusayusouthatutheuentireuclassuca
nureflectuonutheuanswers.uHopefully,uatuleastuaufewuwillumentionuinvestinguevenuifuonlyu$10,000uofuth
euamount.u Useutheiruanswersutoudiscussutakingucareuofucurrentuneedsuversusufutureuneeds.
Focusuonutheirupropensityutouconsumeuanduitsuimpactuonuaccumulatinguwealth.uPointuoututheuFinanci
aluPlanninguTip,u―BeuSMARTuinuPlanningu YouruFinancialuGoals.‖
UseuExhibitu1.2utoushowuhowutheuaverageupersonuearnsuanduspendsutheirumoneyuanduExhibitu1.6utouh
elputheustudentuidentifyuwhereutheyuareunow.
LG2uDescribeutheupersonalufinancialuplanninguprocessuandudefineuyourugoals.
DwightuEisenhower,uarmyugeneraluandupresident,uisuquoteduasusayingu ―Plansuareuuseless;uPlanning
uisupriceless‖.uTheuprocess uofuplanninguallowsu youutoufocusuonutheuissuesuthatuareumostuimportantuan
dutoubeureadyuwhenuthingsuchange.
Exhibitu1.3ulistsutheuSixuStepuFinancialuPlanninguProcess.uTheufirstuandumostuimportantuisudefining
uyourufinancialugoals.uExhibitu1.6ulistsugoalsubyuageutoudemonstrateuhowugoalsuchangeuoverutime.u
UseutheuexamplesuinuExhibitu1.5utouaskustudentsuifutheuassumptionsuareurealistic.uYes,utheuansweruisu
inutheuexhibit,ubutumanyuwillunotuhaveureaduchapteruatuthisupoint.uForuyouruuse,utheuassumptionsuare
:
Assumptionu1:uSavinguaufewuthousandudollarsuauyearushoulduprovideuenoughutoufundumyuchild‘suc
ollegeuEducation.
Assumptionu2:uAnuemergencyufundulastingu3umonthsushouldubeuadequate.
Assumptionu3:uIuwillubeuableutouretireuatu65uandushoulduhaveuplentyutouliveuonuinuretirement.uA
ssumptionu4:uI‘murelyinguonutheuruleuofuthumbuthatuIuwilluneeduonlyu70upercentuofumyupre-
uretirementu incomeutou manageu nicelyuinuretirement.
Thereuareuseveraluworksheetsuinutheubook.uWorksheetu1.1ugivesutheustudentuauformatutouwriteudow
nutheiruPersonaluFinancialuGoals.uThereuisupoweruinuwritingudownugoalsu[andumostuanyuotheruplan].u
Recordingutheugoaluanduthenureviewinguthreeumonthsulateruwilluhelpuyouutoukeepufocusuonutheugoal.
,LG3uExplainutheulifeucycleuofufinancialuplans,utheiruroleuinuachievinguyourufinancialugoals,uhowutoudealuwithuspeci
aluplanninguconcerns,uandutheuuseuofuprofessionalufinancialuplanners.
Exhibitu1.7ucanuhelpufocusutheuattentionuonuhowugoalsudifferubetweenutheuvariousustagesuofulife.uSect
ionu1-3bulistsuvariousudecisionsuthatuyouuwilluhaveutoumakeuoveruyourulife.uTheusectionu1-
3cuaddressesuSpecialuPlanninguConcerns.uWorksheetu1.2ufocusesuonutheufinancialubenefitutoutheufam
ilyuofutheuseconduincome.uIfutheuseconduincomeuisufromuauminimumuwageujob,uitumayunotubeuaugooduf
inancialudecision.uOfucourseuhavinguaujob,uevenuauminimumuwageujob,umayugiveutheupersonupsychicui
ncomeuthatuwilluoverrideutheufinancialuimpact.
Whileuperhapsuoffutopic,uIurecalluauhighuschooluscienceuteacheruwhouwasuausmoker.uHeuwalkeduthrou
ghutheuamountuofumoneyuheuspentuonupurchasingutobaccouproducts.u Thatucomputationuhadua
lotutoudouwithumyudecisionutounotusmoke.uHowuthisurelatesutoutheucourseuisuthatuthisuisuanuillustrationu
ofuhowutheufinancialuimpactuofuaudecisionucanudriveutheudecision.
LG4uExamineutheueconomicuenvironment’suinfluenceuonupersonalufinancialuplanning.
Foruolderufolks,utheufinancialucrisisuofu2008-
2009uisufreshuinuourumemory.uToutheustudentuofu2021,uthatucrisisuisumoreuofuhistoryuthanulife.uIfuyouuc
anushareuauwarustoryuonuhowuyouuwereupersonallyuimpacted,uituwilluhelpubringutheuimpactuofutheuwor
ldueconomyuonufinancialuplansutoulife.uTheubookuspeaksuhowutoumanageuthisutypeuofucrisis,ubutuyouuh
adutougouthroughuitutoureallyuunderstandutheuimpactu ituhad.
Theuvalueuofuprofessionaluadviceuisugreatlyuunderstated.uIfubyutalkingutouauprofessionaluyouucanuprev
entumakinguaumistakeu--uthatucanubeuofuaugreatuvalue.uSectionu1-
3euspeaksutoutheuuseuofuprofessionalufinancialuplanners.u Exhibitu1.9ulistsuoututheuvariousucertificatio
nsuthatuplannersuhave.
Economicuorubusinessucyclesuareureal.uPerhapsutheumostuusefuluthinguaboututheucyclesuisutheuknowle
dgeuthatuifuthingsuareubad,uyouuknowutheyuwillugetubetter.u Ofucourse,uwhenulifeuisugood,uyouuknowut
hatutheubaducycleuwillucomeuarounduagain.u Thus,ufinancialuplanningurequiresusavinguinutheugoodutim
esuforutheubadutimes.uu Seeutheu―Testu Yourself‖uquestionu1-
17uforuaushortu discussionuofubusinessucycles.
