Solution Manual for Personal Financial Planning15t
u u u u u u
h Edition by Randy Billingsley, Lawrence J. Gitman,
u u u u u u u u
Michael D. Joehnk
u u
,SOLUTION MANUAL FOR u u
Personal Financial Planning 15th Edition by Randy Billingsley, La
u u u u u u u u
wrence J. Gitman, Michael D. Joehnk
u u u u u
Understanding the Financial u u u
Planning ProcessChapter 1 u u u
HowuWilluThisuAffectuMe?
Theuheartuofufinancialuplanninguisumakingusureuyouruvaluesulineuupuwithuhowuyouuspenduandusave.uT
hatumeansuknowinguwhereuyouuareufinanciallyuanduplanninguonuhowutougetuwhereuyouuwantutoubeui
nutheufutureunoumatteruwhatulifeuthrowsuatuyou.uForuexample,uhowushoulduyouruplanuhandleutheupr
ojectionuthatuSocialuSecurityucostsumayuexceedurevenuesubyu2035?uAnduwhatuifutheugovernmentude
cidesutouraiseutaxuratesutouhelpucoverutheufederaludeficit?uAnuinformedufinancialuplanushouldureflec
tu suchuuncertaintiesuandu more.
Thisuchapteruoverviewsutheufinancialuplanninguprocessuanduexplainsuitsucontext.uTopicsuincludeuh
owufinancialuplansuchangeutouaccommodateuyourucurrentustageuinulifeuandutheuroleuthatufinancialu
plannersucanuplayuinuhelpinguyouuachieveuyouruobjectives.uAfterureadinguthisuchapteruyouuwilluha
veuaugooduperspectiveuonuhowutouorganizeu youruoverallupersonalufinancialuplan.
LEARNING GOALS u
LG1uIdentifyutheubenefitsuofuusingupersonalufinancialuplanningutechniquesutoumanageuyourufinanc
es.
KeyuconceptuinuthisusectionuisutheuplanningumodeluasudisplayeduinuExhibitu1.1.uYourustandarduofuli
vinguisugreatlyuimpactedubyuyouruspendinguhabitsuanduyourucommitmentutousaving.uYouruspendin
guisumeasuredubyuyourupropensityutouconsume.uWealthuisutheutotaluvalueuofuallupropertyuyouuow
nulessutheuamountuthatu youuoweutouothers.
ACTIVITY:u Askutheustudentsutouassumeuthatutheyuhaveujustu inheritedu$100,000.u Whatuwilluyouudou
withutheu money?uWriteudownuthreeuwaysu youuwilluspenduoruuseutheumoney.
,Askutheustudentsutoushareuoneuitemuwithutheuclassuandurecorduwhatutheyusayusouthatutheuentireucl
assucanureflectuonutheuanswers.uHopefully,uatuleastuaufewuwillumentionuinvestinguevenuifuonlyu$10,
000uofutheuamount.uUseutheiruanswersutoudiscussutakingu careuofucurrentuneedsuversusufutureuneed
s.
Focusuonutheirupropensityutouconsumeuanduitsuimpactuonuaccumulatinguwealth.uPointuoutut
heuFinancialuPlanninguTip,u ―BeuSMARTu inuPlanningu YouruFinancialuGoals.‖
UseuExhibitu1.2utoushowuhowutheuaverageupersonuearnsuanduspendsutheirumoneyuanduExhibitu1.6utou
helputheustudentu identifyuwhereutheyuareu now.
LG2uDescribeutheupersonalufinancialuplanninguprocessuandudefineuyourugoals.
Dwightu Eisenhower,uarmyugeneraluandupresident,uisuquoteduasusayingu ―Plansuareuuseless;uPlanningu
isupriceless‖.uTheuprocessuofuplanninguallowsuyouutoufocusuonutheuissuesuthatuareumostuimportantu
andutoubeureadyuwhenuthingsuchange.
Exhibitu1.3ulistsutheuSixuStepuFinancialuPlanninguProcess.uTheufirstuandumostuimportantuisudefinin
guyourufinancialugoals.uExhibitu1.6ulistsugoalsubyuageutoudemonstrateuhowugoalsuchangeuoverutim
e.uUseutheuexamplesuinuExhibitu1.5utouaskustudentsuifutheuassumptionsuareurealistic.uYes,utheuans
weruisuinutheuexhibit,ubutumanyuwillunotuhaveureaduchapteruatuthisupoint.uForuyouruuse,utheuassu
mptionsuare:
Assumptionu1:uSavinguaufewuthousandudollarsuauyearushoulduprovideuenoughutoufundumyuchild‘su
collegeuEducation.
Assumptionu2:uAnuemergencyufundulastingu3umonthsushouldubeuadequate.
Assumptionu3:uIuwillubeuableutouretireuatu65uandushoulduhaveuplentyutouliveuonuinuretirement.u
Assumptionu4:uI‘murelyinguonutheuruleuofuthumbuthatuIuwilluneeduonlyu70upercentuofumyupre-
retirementu incomeutou manageunicelyuinuretirement.
u
Thereuareuseveraluworksheetsuinutheubook.uWorksheetu1.1ugivesutheustudentuauformatutouwriteud
ownutheiruPersonaluFinancialuGoals.uThereuisupoweruinuwritingudownugoalsu[andumostuanyuotherupl
an].uRecordingutheugoaluanduthenureviewinguthreeumonthsulateruwilluhelpuyouutoukeepufocusuonuth
eugoal.
LG3uExplainutheulifeucycleuofufinancialuplans,utheiruroleuinuachievinguyourufinancialugoals,uhowut
oudealuwithuspecialuplanninguconcerns,uandutheuuseuofuprofessionalufinancialuplanners.
Exhibitu1.7ucanuhelpufocusutheuattentionuonuhowugoalsudifferubetweenutheuvariousustagesuofulife.u
Sectionu1-3bulistsuvariousudecisionsuthatuyouuwilluhaveutoumakeuoveruyourulife.uTheusectionu1-
3cuaddressesuSpecialuPlanninguConcerns.uWorksheetu1.2ufocusesuonutheufinancialubenefitutoutheuf
amilyuofutheuseconduincome.uIfutheuseconduincomeuisufromuauminimumuwageujob,uitumayunotubeuau
goodufinancialudecision.u Ofucourseuhavinguau job,uevenuau minimumuwageu job,u mayugiveutheupersonu
psychicu incomeuthatu willuoverrideutheu financialuimpact.
Whileuperhapsuoffutopic,uIurecalluauhighuschooluscienceuteacheruwhouwasuausmoker.uHeuwalkeduth
roughutheuamountuofumoneyuheuspentuonupurchasingutobaccou products.uThatucomputationuhadua
, lotutoudouwithumyudecisionutounotusmoke.uHowuthisurelatesutoutheucourseuisuthatuthisuisuanuillustrati
onuofuhowutheufinancialuimpactuofuaudecisionucanudriveutheudecision.
LG4uExamineutheueconomicuenvironment’suinfluenceuonupersonalufinancialuplanning.
Foruolderufolks,utheufinancialucrisisuofu2008-
2009uisufreshuinuourumemory.uToutheustudentuofu2021,uthatucrisisuisumoreuofuhistoryuthanulife.uIfuyo
uucanushareuauwarustoryuonuhowuyouuwereupersonallyuimpacted,uituwilluhelpubringutheuimpactuofut
heuworldueconomyuonufinancialuplansutoulife.uTheubookuspeaksuhowutoumanageuthisutypeuofucrisis,u
butuyouuhadutougouthroughuitutoureallyuunderstandutheuimpactu itu had.
Theuvalueuofuprofessionaluadviceuisugreatlyuunderstated.uIfubyutalkingutouauprofessionaluyouucanupr
eventumakinguaumistakeu--uthatucanubeuofuaugreatuvalue.uSectionu1-
3euspeaksutoutheuuseuofuprofessionalufinancialuplanners.uExhibitu1.9ulistsuoututheuvariousucertificatio
nsuthatuplannersuhave.
Economicuorubusinessucyclesuareureal.uPerhapsutheumostuusefuluthinguaboututheucyclesuisutheukno
wledgeuthatuifuthingsuareubad,uyouuknowutheyuwillugetubetter.uOfucourse,uwhenulifeuisugood,uyouuk
nowuthatutheubaducycleuwillucomeuarounduagain.uThus,ufinancialuplanningurequiresusavinguinut heugo
odutimesu forutheubadutimes.uu Seeutheu―Testu Yourself‖uquestionu1-
17uforuaushortu discussionuofubusinessucycles.
Theupoweruofucompoundinguisurarelyuunderstood.uExhibitu1.8ushowsuhowutheuamountu$10,00
0uwillugrowuoverutime.uTheulongerutheuinvestmentustaysuinvested,utheugreaterutheuamountu–
utheupoweruofucompoundu interest.
LG5uEvaluateutheuimpactuofuage,ueducation,uandugeographiculocationuonupersonaluincome.
Exhibitu1.12usaysuituall.
LG6uUnderstandutheuimportanceuofucareeruchoicesuandutheirurelationshiputoupersonalufinancialupl
anning.
Exhibitu 1.13ushowsuthatutheuchoiceuofuaucollegeu majoruhasuaufinancialuimpact.uOfucourseumoneyucan
notubuyuhappiness,ubutuhavinguaubituhelps.uIfuyouureallyuwantutoubeuanuelementaryuschooluteacher,u
youumusturecognizeuthatuyouuwillunotuhaveuasumuchuwealthuasuaulawyeruorufinancialuanalyst.
Theusummaryuofutheulearningugoalsuatutheuenduofutheuchapterushoulduaidutheustudentuinureviewi
ngutheuchapteruwhenuexamutimeucomes.uItuwillubeuusefulutoupointuoututoutheustudentuhowutouuse
uthisumaterial.
LinkutouSolutionsutouFinancialuPlanninguExercises
Pre-tests
u u u u u u
h Edition by Randy Billingsley, Lawrence J. Gitman,
u u u u u u u u
Michael D. Joehnk
u u
,SOLUTION MANUAL FOR u u
Personal Financial Planning 15th Edition by Randy Billingsley, La
u u u u u u u u
wrence J. Gitman, Michael D. Joehnk
u u u u u
Understanding the Financial u u u
Planning ProcessChapter 1 u u u
HowuWilluThisuAffectuMe?
Theuheartuofufinancialuplanninguisumakingusureuyouruvaluesulineuupuwithuhowuyouuspenduandusave.uT
hatumeansuknowinguwhereuyouuareufinanciallyuanduplanninguonuhowutougetuwhereuyouuwantutoubeui
nutheufutureunoumatteruwhatulifeuthrowsuatuyou.uForuexample,uhowushoulduyouruplanuhandleutheupr
ojectionuthatuSocialuSecurityucostsumayuexceedurevenuesubyu2035?uAnduwhatuifutheugovernmentude
cidesutouraiseutaxuratesutouhelpucoverutheufederaludeficit?uAnuinformedufinancialuplanushouldureflec
tu suchuuncertaintiesuandu more.
Thisuchapteruoverviewsutheufinancialuplanninguprocessuanduexplainsuitsucontext.uTopicsuincludeuh
owufinancialuplansuchangeutouaccommodateuyourucurrentustageuinulifeuandutheuroleuthatufinancialu
plannersucanuplayuinuhelpinguyouuachieveuyouruobjectives.uAfterureadinguthisuchapteruyouuwilluha
veuaugooduperspectiveuonuhowutouorganizeu youruoverallupersonalufinancialuplan.
LEARNING GOALS u
LG1uIdentifyutheubenefitsuofuusingupersonalufinancialuplanningutechniquesutoumanageuyourufinanc
es.
KeyuconceptuinuthisusectionuisutheuplanningumodeluasudisplayeduinuExhibitu1.1.uYourustandarduofuli
vinguisugreatlyuimpactedubyuyouruspendinguhabitsuanduyourucommitmentutousaving.uYouruspendin
guisumeasuredubyuyourupropensityutouconsume.uWealthuisutheutotaluvalueuofuallupropertyuyouuow
nulessutheuamountuthatu youuoweutouothers.
ACTIVITY:u Askutheustudentsutouassumeuthatutheyuhaveujustu inheritedu$100,000.u Whatuwilluyouudou
withutheu money?uWriteudownuthreeuwaysu youuwilluspenduoruuseutheumoney.
,Askutheustudentsutoushareuoneuitemuwithutheuclassuandurecorduwhatutheyusayusouthatutheuentireucl
assucanureflectuonutheuanswers.uHopefully,uatuleastuaufewuwillumentionuinvestinguevenuifuonlyu$10,
000uofutheuamount.uUseutheiruanswersutoudiscussutakingu careuofucurrentuneedsuversusufutureuneed
s.
Focusuonutheirupropensityutouconsumeuanduitsuimpactuonuaccumulatinguwealth.uPointuoutut
heuFinancialuPlanninguTip,u ―BeuSMARTu inuPlanningu YouruFinancialuGoals.‖
UseuExhibitu1.2utoushowuhowutheuaverageupersonuearnsuanduspendsutheirumoneyuanduExhibitu1.6utou
helputheustudentu identifyuwhereutheyuareu now.
LG2uDescribeutheupersonalufinancialuplanninguprocessuandudefineuyourugoals.
Dwightu Eisenhower,uarmyugeneraluandupresident,uisuquoteduasusayingu ―Plansuareuuseless;uPlanningu
isupriceless‖.uTheuprocessuofuplanninguallowsuyouutoufocusuonutheuissuesuthatuareumostuimportantu
andutoubeureadyuwhenuthingsuchange.
Exhibitu1.3ulistsutheuSixuStepuFinancialuPlanninguProcess.uTheufirstuandumostuimportantuisudefinin
guyourufinancialugoals.uExhibitu1.6ulistsugoalsubyuageutoudemonstrateuhowugoalsuchangeuoverutim
e.uUseutheuexamplesuinuExhibitu1.5utouaskustudentsuifutheuassumptionsuareurealistic.uYes,utheuans
weruisuinutheuexhibit,ubutumanyuwillunotuhaveureaduchapteruatuthisupoint.uForuyouruuse,utheuassu
mptionsuare:
Assumptionu1:uSavinguaufewuthousandudollarsuauyearushoulduprovideuenoughutoufundumyuchild‘su
collegeuEducation.
Assumptionu2:uAnuemergencyufundulastingu3umonthsushouldubeuadequate.
Assumptionu3:uIuwillubeuableutouretireuatu65uandushoulduhaveuplentyutouliveuonuinuretirement.u
Assumptionu4:uI‘murelyinguonutheuruleuofuthumbuthatuIuwilluneeduonlyu70upercentuofumyupre-
retirementu incomeutou manageunicelyuinuretirement.
u
Thereuareuseveraluworksheetsuinutheubook.uWorksheetu1.1ugivesutheustudentuauformatutouwriteud
ownutheiruPersonaluFinancialuGoals.uThereuisupoweruinuwritingudownugoalsu[andumostuanyuotherupl
an].uRecordingutheugoaluanduthenureviewinguthreeumonthsulateruwilluhelpuyouutoukeepufocusuonuth
eugoal.
LG3uExplainutheulifeucycleuofufinancialuplans,utheiruroleuinuachievinguyourufinancialugoals,uhowut
oudealuwithuspecialuplanninguconcerns,uandutheuuseuofuprofessionalufinancialuplanners.
Exhibitu1.7ucanuhelpufocusutheuattentionuonuhowugoalsudifferubetweenutheuvariousustagesuofulife.u
Sectionu1-3bulistsuvariousudecisionsuthatuyouuwilluhaveutoumakeuoveruyourulife.uTheusectionu1-
3cuaddressesuSpecialuPlanninguConcerns.uWorksheetu1.2ufocusesuonutheufinancialubenefitutoutheuf
amilyuofutheuseconduincome.uIfutheuseconduincomeuisufromuauminimumuwageujob,uitumayunotubeuau
goodufinancialudecision.u Ofucourseuhavinguau job,uevenuau minimumuwageu job,u mayugiveutheupersonu
psychicu incomeuthatu willuoverrideutheu financialuimpact.
Whileuperhapsuoffutopic,uIurecalluauhighuschooluscienceuteacheruwhouwasuausmoker.uHeuwalkeduth
roughutheuamountuofumoneyuheuspentuonupurchasingutobaccou products.uThatucomputationuhadua
, lotutoudouwithumyudecisionutounotusmoke.uHowuthisurelatesutoutheucourseuisuthatuthisuisuanuillustrati
onuofuhowutheufinancialuimpactuofuaudecisionucanudriveutheudecision.
LG4uExamineutheueconomicuenvironment’suinfluenceuonupersonalufinancialuplanning.
Foruolderufolks,utheufinancialucrisisuofu2008-
2009uisufreshuinuourumemory.uToutheustudentuofu2021,uthatucrisisuisumoreuofuhistoryuthanulife.uIfuyo
uucanushareuauwarustoryuonuhowuyouuwereupersonallyuimpacted,uituwilluhelpubringutheuimpactuofut
heuworldueconomyuonufinancialuplansutoulife.uTheubookuspeaksuhowutoumanageuthisutypeuofucrisis,u
butuyouuhadutougouthroughuitutoureallyuunderstandutheuimpactu itu had.
Theuvalueuofuprofessionaluadviceuisugreatlyuunderstated.uIfubyutalkingutouauprofessionaluyouucanupr
eventumakinguaumistakeu--uthatucanubeuofuaugreatuvalue.uSectionu1-
3euspeaksutoutheuuseuofuprofessionalufinancialuplanners.uExhibitu1.9ulistsuoututheuvariousucertificatio
nsuthatuplannersuhave.
Economicuorubusinessucyclesuareureal.uPerhapsutheumostuusefuluthinguaboututheucyclesuisutheukno
wledgeuthatuifuthingsuareubad,uyouuknowutheyuwillugetubetter.uOfucourse,uwhenulifeuisugood,uyouuk
nowuthatutheubaducycleuwillucomeuarounduagain.uThus,ufinancialuplanningurequiresusavinguinut heugo
odutimesu forutheubadutimes.uu Seeutheu―Testu Yourself‖uquestionu1-
17uforuaushortu discussionuofubusinessucycles.
Theupoweruofucompoundinguisurarelyuunderstood.uExhibitu1.8ushowsuhowutheuamountu$10,00
0uwillugrowuoverutime.uTheulongerutheuinvestmentustaysuinvested,utheugreaterutheuamountu–
utheupoweruofucompoundu interest.
LG5uEvaluateutheuimpactuofuage,ueducation,uandugeographiculocationuonupersonaluincome.
Exhibitu1.12usaysuituall.
LG6uUnderstandutheuimportanceuofucareeruchoicesuandutheirurelationshiputoupersonalufinancialupl
anning.
Exhibitu 1.13ushowsuthatutheuchoiceuofuaucollegeu majoruhasuaufinancialuimpact.uOfucourseumoneyucan
notubuyuhappiness,ubutuhavinguaubituhelps.uIfuyouureallyuwantutoubeuanuelementaryuschooluteacher,u
youumusturecognizeuthatuyouuwillunotuhaveuasumuchuwealthuasuaulawyeruorufinancialuanalyst.
Theusummaryuofutheulearningugoalsuatutheuenduofutheuchapterushoulduaidutheustudentuinureviewi
ngutheuchapteruwhenuexamutimeucomes.uItuwillubeuusefulutoupointuoututoutheustudentuhowutouuse
uthisumaterial.
LinkutouSolutionsutouFinancialuPlanninguExercises
Pre-tests
