vv v v v v vv
Personal Financial Planning 15th Edition by Randy
Billingsley, Lawrence J. Gitman, Michael D. Joehnk
,Understanding the vv
Financial Planning vv
ProcessChapter 1
vv v vv
How Will This Affect Me?
vv v v vv v v
The heart of financial planning is making sure your values line up with how
v v v v v v v v v v v v v v v v v v v v v v v v v v
you spend and save.That means knowing where you are financially and planning
v v v v v v vv v v v v v v v v v v v v vv v v
on how to get where you want to bein the future no matter what life throws
v v vv v v v v v v v v vv v v v v v v v v v v v v v v v v v v
at you. For example, how should your plan handle the projection that Social
v v v v v v v v v v v v v v vv v v v v v v v v v v
Security costs may exceed revenues by 2035? And what if the
v v v v v v v v v v v v v v v v vv v v v v
governmentdecides to raise tax rates to help cover the federal deficit? An
v v v v v v v v v v v v v v v v v v v v v v v v
informed financial plan should reflect such uncertainties and more.
vv v v v v v v v v v v vv v v v v
This chapter overviews the financial planning process and explains its context.
v v v v v v v v v v v v v v v v v v v v
Topics include how financial plans change to accommodate your current stage in
v v vv v v v v vv v v v v v v v v v v v v v v
life and the role that financialplanners can play in helping you achieve your
v v v v v v v v vv v v v v v v v v v v v v v v v v
objectives. After reading this chapter you will have a good perspective on
v v v v v v v v vv v v v v v v v v v v v v v v
how to organize your overall personal financial plan.
v v v v v v v v v v vv vv vv
LEARNING GOALS vv
LG1 Identify the benefits of using personal financial planning techniques to
v v v v v v v v v v vv vv vv v v v v
manage yourfinances.
vv vv
Key concept in this section is the planning model as displayed in Exhibit 1.1.
v v v v v v v v v v v v v v v v v v v v v v v v v v
Your standard of living is greatly impacted by your spending habits and your
v v vv v v v v v v v v v v v v v v v v v v v v v v
commitment to saving. Your spending is measured by your propensity to
v v v v vv v v v v v v v v v v v v v v v v
consume. Wealth is the total value of all propertyyou own less the amount
v v v v v v v v v v vv v v v v v v v v v v v v v v
that you owe to others.
v v v v v v vv v v
ACTIVITY: Ask the students to assume that they have just inherited $100,000. v v v v vv v v vv v v vv v v v v v v
What will youdo with the money? Write down three ways you will spend
v v vv v v v v vv v v v v v v vv v v v v v v vv
or use the money.
v v v v vv v v
,Ask the students to share one item with the class and record what they say
v v v v v v v v v v v v v v v v v v v v v v v v v v v v
so that the entire class can reflect on the answers. Hopefully, at least a few
v v v v v v vv v v vv v v v v v v v v v v v v v v v v v v
will mention investing even if only $10,000 of the amount. Use their answers
v v v v v v vv v v v v v v v v vv v v v v v v v v
to discuss taking care of current needs versus future needs.
v v v v v v v v v v v v vv v v v v v v
Focus on their propensity to consume and its impact on accumulating
v v v v v v v v v v v v v v v v v v v v
wealth. Point out the Financial Planning Tip, ―Be SMART in Planning
v v v v vv v v vv vv v v v v v v v v vv
Your Financial Goals.‖
v v v v vv
Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit
v v v v vv v v v v vv v v v v vv v v v v v v v v vv v v
1.6 to help the student identify where they are now.
vv vv v v v v v v vv v v vv v v
LG2 Describe the personal financial planning process and define your goals.
v v v v vv vv vv v v vv v v v v vv
Dwight Eisenhower, army general and president, is quoted as saying ―Plans are
v v vv v v vv v v v v v v v v v v v v vv
useless; Planning is priceless‖. The process of planning allows you to focus on
v v vv v v v v v v v v v v v v v v v v v v v v v v
the issues that are most important and to be ready when things change.
v v v v v v v v vv v v v v v v v v v v vv vv v v
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most
v v v v v v v v v v v v v v v v v v v v v v v v
important is defining your financial goals. Exhibit 1.6 lists goals by age to
v v v v vv v v v v v v v v v v v v v v v v v v v v
demonstrate how goals change over time. Use the examples in Exhibit 1.5 to
v v v v v v vv v v vv v v v v v v v v vv v v v v
ask students if the assumptions are realistic. Yes,the answer is in the exhibit, but
v v v v vv vv v v vv vv v v v v v v v v v v v v v v
many will not have read chapter at this point. For your use, theassumptions
v v v v v v v v v v v v v v v v vv v v v v v v v v
are:
v v
Assumption 1: Saving a few thousand dollars a year should provide enough to fund my
vv vv vv vv vv vv vv vv vv vv vv vv vv vv
child‘scollege Education.
vv v v
Assumption 2: An emergency fund lasting 3 months should be adequate.
v v v v vv vv v v vv v v vv v v vv
Assumption 3: I will be able to retire at 65 and should have plenty to live on in
vv vv vv vv vv vv vv vv vv vv vv vv vv vv vv vv vv
retirement.Assumption 4: I‘m relying on the rule of thumb that I will need only 70
vv vv vv vv vv vv vv vv vv vv vv vv vv vv vv
percent of my pre- retirement income to manage nicely in retirement.
vv v v v v v v vv v v v v v v v v v v v v
There are several worksheets in the book. Worksheet 1.1 gives the student a
v v v v v v v v v v v v v v v v v v v v v v v v
format to write down their Personal Financial Goals. There is power in
v v v v vv v v v v v v v v v v v v v v v v v v
writing down goals [and most any otherplan]. Recording the goal and then
v v v v v v v v vv v v v v v v v v v v v v v v
reviewing three months later will help you to keep focus on the goal.
v v v v v v v v v v v v vv v v v v v v v v vv v v
LG3 Explain the life cycle of financial plans, their role in achieving your
v v v v v v v v v v v v v v v v v v v v v v v v
financial goals, how to deal with special planning concerns, and the use
v v vv v v v v v v v v v v v v v v v v v v v v
of professional financial planners.
v v v v vv vv
Exhibit 1.7 can help focus the attention on how goals differ between the
v v v v v v v v v v v v v v v v v v v v v v v v
various stages of life. Section 1-3b lists various decisions that you will have
v v v v v v vv v v v v v v v v v v v v v v v v v v
to make over your life. The section 1-3c addresses Special Planning Concerns.
v v v v v v v v v v v v vv v v v v v v v v v v
Worksheet 1.2 focuses on the financial benefit to the family of the second
v v v v v v v v v v v v vv v v v v v v v v v v v v
income. If the second income is from a minimum wage job, it may not be
v v v v v v v v v v v v v v v v v v vv v v v v v v v v v v
a good financial decision. Of course having a job, even a minimum wage job,
v v vv vv vv v v vv v v v v v v v v vv vv vv v v
may give the person psychic income that will override the financial impact.
v v vv v v vv vv v v v v v v vv v v v v vv
While perhaps off topic, I recall a high school science teacher who was a
v v v v v v v v v v v v v v v v v v v v v v v v v v
smoker. He walked through the amount of money he spent on purchasing tobacco
v v v v vv vv vv vv vv vv vv vv vv vv vv
products. That computation had a
vv vv vv v v v v
, lot to do with my decision to not smoke. How this relates to the course is that
v v v v v v v v vv vv v v v v v v vv v v v v vv v v v v v v
this is an illustration of how the financial impact of a decision can drive the
v v v v vv vv vv vv v v v v v v v v vv v v vv vv v v
decision.
v v
LG4 Examine the economic environment’s influence on personal financial planning.
v v vv vv vv vv vv vv vv v v
For older folks, the financial crisis of 2008-2009 is fresh in our memory. To
v v v v v v v v v v v v v v v v v v v v v v v v v v
the student of 2021, that crisis is more of history than life. If you can share
v v v v vv v v vv v v v v v v v v v v v v v v v v v v v v v v
a war story on how you
v v v v v v v v v v v v
were personally impacted, it will help bring the impact of the world economy
v v v v v v v v v v v v v v v v v v v v v v v v
on financial plans to life. The bookspeaks how to manage this type of crisis,
v v v v vv v v v v v v v v v v v v v v v v v v v v v v
but you had to go through it to really understand the impact it had.
v v v v v v v v v v vv v v v v v v v v v v v v v v v v
The value of professional advice is greatly understated. If by talking to a
v v v v v v v v v v v v v v v v v v v v v v v v
professional you can prevent making a mistake -- that can be of a great
v v v v vv v v v v v v v v v v v v v v v v v v vv v v
value. Section 1-3e speaks to the use of professional financial planners. Exhibit
v v v v v v v v v v v v vv v v v v v v vv v v
1.9 lists out the various certifications that planners have.
v v v v vv vv vv vv v v vv v v
Economic or business cycles are real. Perhaps the most useful thing about the
v v v v v v v v v v v v v v v v v v v v v v v v
cycles is the knowledge that if things are bad, you know they will get
v v v v vv v v v v v v v v v v v v v v v v v v v v v v
better. Of course, when life is good, you know that the bad cycle will come
v v v v v v v v v v vv v v v v v v v v v v v v v v v v vv
around again. Thus, financial planning requires saving inthe good times for the
v v v v v v v v vv vv vv v v v v vv v v v v
bad times.
v v v v See the ―Test Yourself‖ question vv v v v v v v
1- 17 for a short discussion of business cycles.
vv vv v v v v v v v v vv v v v v
The power of compounding is rarely understood. Exhibit 1.8 shows how the amount
v v v v v v v v v v v v v v v v v v v v v v v v
$10,000 will grow over time. The longer the investment stays invested, the greater
vv v v v v v v v v v v v v v v v v v v v v v v
the amount – the power of compound interest.
v v vv v v v v v v vv vv v v
LG5 Evaluate the impact of age, education, and geographic location on personal income.
v v v v vv v v vv v v v v vv v v v v v v vv
Exhibit 1.12 says it all. v v vv vv v v
LG6 Understand the importance of career choices and their relationship to
v v v v vv vv vv vv vv v v vv v v
personal financial planning.
vv vv vv
Exhibit 1.13 shows that the choice of a college major has a financial impact.
v v v v v v v v v v v v vv v v v v v v v v v v v v
Of course moneycannot buy happiness, but having a bit helps. If you really
v v vv vv v v v v v v v v v v v v v v v v v v v v
want to be an elementary school teacher, you must recognize that you will not
v v v v v v v v v v vv v v v v v v v v v v v v v v v v
have as much wealth as a lawyer or financial analyst.
v v v v v v v v v v v v v v v v vv v v
The summary of the learning goals at the end of the chapter should aid the student in
vv vv vv vv vv vv vv vv vv vv vv vv vv vv vv vv
reviewing the chapter when exam time comes. It will be useful to point out
v v vv v v v v v v v v v v v v v v v v v v v v v v v v
to the student how to use this material.
v v v v v v v v v v v v v v v v
Link to Solutions to Financial Planning Exercises
vv v v vv v v vv v v
Pre-tests
Personal Financial Planning 15th Edition by Randy
Billingsley, Lawrence J. Gitman, Michael D. Joehnk
,Understanding the vv
Financial Planning vv
ProcessChapter 1
vv v vv
How Will This Affect Me?
vv v v vv v v
The heart of financial planning is making sure your values line up with how
v v v v v v v v v v v v v v v v v v v v v v v v v v
you spend and save.That means knowing where you are financially and planning
v v v v v v vv v v v v v v v v v v v v vv v v
on how to get where you want to bein the future no matter what life throws
v v vv v v v v v v v v vv v v v v v v v v v v v v v v v v v v
at you. For example, how should your plan handle the projection that Social
v v v v v v v v v v v v v v vv v v v v v v v v v v
Security costs may exceed revenues by 2035? And what if the
v v v v v v v v v v v v v v v v vv v v v v
governmentdecides to raise tax rates to help cover the federal deficit? An
v v v v v v v v v v v v v v v v v v v v v v v v
informed financial plan should reflect such uncertainties and more.
vv v v v v v v v v v v vv v v v v
This chapter overviews the financial planning process and explains its context.
v v v v v v v v v v v v v v v v v v v v
Topics include how financial plans change to accommodate your current stage in
v v vv v v v v vv v v v v v v v v v v v v v v
life and the role that financialplanners can play in helping you achieve your
v v v v v v v v vv v v v v v v v v v v v v v v v v
objectives. After reading this chapter you will have a good perspective on
v v v v v v v v vv v v v v v v v v v v v v v v
how to organize your overall personal financial plan.
v v v v v v v v v v vv vv vv
LEARNING GOALS vv
LG1 Identify the benefits of using personal financial planning techniques to
v v v v v v v v v v vv vv vv v v v v
manage yourfinances.
vv vv
Key concept in this section is the planning model as displayed in Exhibit 1.1.
v v v v v v v v v v v v v v v v v v v v v v v v v v
Your standard of living is greatly impacted by your spending habits and your
v v vv v v v v v v v v v v v v v v v v v v v v v v
commitment to saving. Your spending is measured by your propensity to
v v v v vv v v v v v v v v v v v v v v v v
consume. Wealth is the total value of all propertyyou own less the amount
v v v v v v v v v v vv v v v v v v v v v v v v v v
that you owe to others.
v v v v v v vv v v
ACTIVITY: Ask the students to assume that they have just inherited $100,000. v v v v vv v v vv v v vv v v v v v v
What will youdo with the money? Write down three ways you will spend
v v vv v v v v vv v v v v v v vv v v v v v v vv
or use the money.
v v v v vv v v
,Ask the students to share one item with the class and record what they say
v v v v v v v v v v v v v v v v v v v v v v v v v v v v
so that the entire class can reflect on the answers. Hopefully, at least a few
v v v v v v vv v v vv v v v v v v v v v v v v v v v v v v
will mention investing even if only $10,000 of the amount. Use their answers
v v v v v v vv v v v v v v v v vv v v v v v v v v
to discuss taking care of current needs versus future needs.
v v v v v v v v v v v v vv v v v v v v
Focus on their propensity to consume and its impact on accumulating
v v v v v v v v v v v v v v v v v v v v
wealth. Point out the Financial Planning Tip, ―Be SMART in Planning
v v v v vv v v vv vv v v v v v v v v vv
Your Financial Goals.‖
v v v v vv
Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit
v v v v vv v v v v vv v v v v vv v v v v v v v v vv v v
1.6 to help the student identify where they are now.
vv vv v v v v v v vv v v vv v v
LG2 Describe the personal financial planning process and define your goals.
v v v v vv vv vv v v vv v v v v vv
Dwight Eisenhower, army general and president, is quoted as saying ―Plans are
v v vv v v vv v v v v v v v v v v v v vv
useless; Planning is priceless‖. The process of planning allows you to focus on
v v vv v v v v v v v v v v v v v v v v v v v v v v
the issues that are most important and to be ready when things change.
v v v v v v v v vv v v v v v v v v v v vv vv v v
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most
v v v v v v v v v v v v v v v v v v v v v v v v
important is defining your financial goals. Exhibit 1.6 lists goals by age to
v v v v vv v v v v v v v v v v v v v v v v v v v v
demonstrate how goals change over time. Use the examples in Exhibit 1.5 to
v v v v v v vv v v vv v v v v v v v v vv v v v v
ask students if the assumptions are realistic. Yes,the answer is in the exhibit, but
v v v v vv vv v v vv vv v v v v v v v v v v v v v v
many will not have read chapter at this point. For your use, theassumptions
v v v v v v v v v v v v v v v v vv v v v v v v v v
are:
v v
Assumption 1: Saving a few thousand dollars a year should provide enough to fund my
vv vv vv vv vv vv vv vv vv vv vv vv vv vv
child‘scollege Education.
vv v v
Assumption 2: An emergency fund lasting 3 months should be adequate.
v v v v vv vv v v vv v v vv v v vv
Assumption 3: I will be able to retire at 65 and should have plenty to live on in
vv vv vv vv vv vv vv vv vv vv vv vv vv vv vv vv vv
retirement.Assumption 4: I‘m relying on the rule of thumb that I will need only 70
vv vv vv vv vv vv vv vv vv vv vv vv vv vv vv
percent of my pre- retirement income to manage nicely in retirement.
vv v v v v v v vv v v v v v v v v v v v v
There are several worksheets in the book. Worksheet 1.1 gives the student a
v v v v v v v v v v v v v v v v v v v v v v v v
format to write down their Personal Financial Goals. There is power in
v v v v vv v v v v v v v v v v v v v v v v v v
writing down goals [and most any otherplan]. Recording the goal and then
v v v v v v v v vv v v v v v v v v v v v v v v
reviewing three months later will help you to keep focus on the goal.
v v v v v v v v v v v v vv v v v v v v v v vv v v
LG3 Explain the life cycle of financial plans, their role in achieving your
v v v v v v v v v v v v v v v v v v v v v v v v
financial goals, how to deal with special planning concerns, and the use
v v vv v v v v v v v v v v v v v v v v v v v v
of professional financial planners.
v v v v vv vv
Exhibit 1.7 can help focus the attention on how goals differ between the
v v v v v v v v v v v v v v v v v v v v v v v v
various stages of life. Section 1-3b lists various decisions that you will have
v v v v v v vv v v v v v v v v v v v v v v v v v v
to make over your life. The section 1-3c addresses Special Planning Concerns.
v v v v v v v v v v v v vv v v v v v v v v v v
Worksheet 1.2 focuses on the financial benefit to the family of the second
v v v v v v v v v v v v vv v v v v v v v v v v v v
income. If the second income is from a minimum wage job, it may not be
v v v v v v v v v v v v v v v v v v vv v v v v v v v v v v
a good financial decision. Of course having a job, even a minimum wage job,
v v vv vv vv v v vv v v v v v v v v vv vv vv v v
may give the person psychic income that will override the financial impact.
v v vv v v vv vv v v v v v v vv v v v v vv
While perhaps off topic, I recall a high school science teacher who was a
v v v v v v v v v v v v v v v v v v v v v v v v v v
smoker. He walked through the amount of money he spent on purchasing tobacco
v v v v vv vv vv vv vv vv vv vv vv vv vv
products. That computation had a
vv vv vv v v v v
, lot to do with my decision to not smoke. How this relates to the course is that
v v v v v v v v vv vv v v v v v v vv v v v v vv v v v v v v
this is an illustration of how the financial impact of a decision can drive the
v v v v vv vv vv vv v v v v v v v v vv v v vv vv v v
decision.
v v
LG4 Examine the economic environment’s influence on personal financial planning.
v v vv vv vv vv vv vv vv v v
For older folks, the financial crisis of 2008-2009 is fresh in our memory. To
v v v v v v v v v v v v v v v v v v v v v v v v v v
the student of 2021, that crisis is more of history than life. If you can share
v v v v vv v v vv v v v v v v v v v v v v v v v v v v v v v v
a war story on how you
v v v v v v v v v v v v
were personally impacted, it will help bring the impact of the world economy
v v v v v v v v v v v v v v v v v v v v v v v v
on financial plans to life. The bookspeaks how to manage this type of crisis,
v v v v vv v v v v v v v v v v v v v v v v v v v v v v
but you had to go through it to really understand the impact it had.
v v v v v v v v v v vv v v v v v v v v v v v v v v v v
The value of professional advice is greatly understated. If by talking to a
v v v v v v v v v v v v v v v v v v v v v v v v
professional you can prevent making a mistake -- that can be of a great
v v v v vv v v v v v v v v v v v v v v v v v v vv v v
value. Section 1-3e speaks to the use of professional financial planners. Exhibit
v v v v v v v v v v v v vv v v v v v v vv v v
1.9 lists out the various certifications that planners have.
v v v v vv vv vv vv v v vv v v
Economic or business cycles are real. Perhaps the most useful thing about the
v v v v v v v v v v v v v v v v v v v v v v v v
cycles is the knowledge that if things are bad, you know they will get
v v v v vv v v v v v v v v v v v v v v v v v v v v v v
better. Of course, when life is good, you know that the bad cycle will come
v v v v v v v v v v vv v v v v v v v v v v v v v v v v vv
around again. Thus, financial planning requires saving inthe good times for the
v v v v v v v v vv vv vv v v v v vv v v v v
bad times.
v v v v See the ―Test Yourself‖ question vv v v v v v v
1- 17 for a short discussion of business cycles.
vv vv v v v v v v v v vv v v v v
The power of compounding is rarely understood. Exhibit 1.8 shows how the amount
v v v v v v v v v v v v v v v v v v v v v v v v
$10,000 will grow over time. The longer the investment stays invested, the greater
vv v v v v v v v v v v v v v v v v v v v v v v
the amount – the power of compound interest.
v v vv v v v v v v vv vv v v
LG5 Evaluate the impact of age, education, and geographic location on personal income.
v v v v vv v v vv v v v v vv v v v v v v vv
Exhibit 1.12 says it all. v v vv vv v v
LG6 Understand the importance of career choices and their relationship to
v v v v vv vv vv vv vv v v vv v v
personal financial planning.
vv vv vv
Exhibit 1.13 shows that the choice of a college major has a financial impact.
v v v v v v v v v v v v vv v v v v v v v v v v v v
Of course moneycannot buy happiness, but having a bit helps. If you really
v v vv vv v v v v v v v v v v v v v v v v v v v v
want to be an elementary school teacher, you must recognize that you will not
v v v v v v v v v v vv v v v v v v v v v v v v v v v v
have as much wealth as a lawyer or financial analyst.
v v v v v v v v v v v v v v v v vv v v
The summary of the learning goals at the end of the chapter should aid the student in
vv vv vv vv vv vv vv vv vv vv vv vv vv vv vv vv
reviewing the chapter when exam time comes. It will be useful to point out
v v vv v v v v v v v v v v v v v v v v v v v v v v v v
to the student how to use this material.
v v v v v v v v v v v v v v v v
Link to Solutions to Financial Planning Exercises
vv v v vv v v vv v v
Pre-tests
