Solution Manual for Personal Financial
Planning 16th Edition by Billingsley & Gitman,
All Chapters 1 – 15
, 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 Vin VStocks Vand VBonds.
13. Investing Vin VMutual VFunds Vand VReal
Estate. V Part VVI: VRETIREMENT VAND VESTATE
V
PLANNING.
V
14. Planning Vfor VRetirement.
15. Preserving VYour VEstate.
Chapter 1 Understanding the Financial Planning Process
How VWill VThis VAffect VMe?
The Vheart Vof Vfinancial Vplanning Vis Vmaking Vsure Vyour Vvalues Vline Vup Vwith Vhow Vyou
Vspend Vand V save. VThat Vmeans Vknowing Vwhere Vyou Vare Vfinancially Vand Vplanning Von
Vhow Vto Vget Vwhere Vyou V want Vto Vbe Vin Vthe Vfuture Vno Vmatter Vwhat Vlife Vthrows Vat Vyou.
VFor Vexample, Vhow Vshould Vyour V plan Vhandle Vthe Vprojection Vthat VSocial VSecurity Vcosts
Vmay Vexceed Vrevenues Vby V2035? VAnd V what Vif Vthe Vgovernment Vdecides Vto Vraise Vtax
Vrates Vto Vhelp Vcover Vthe Vfederal Vdeficit? VAn V informed Vfinancial Vplan Vshould Vreflect
Vsuch Vuncertainties Vand Vmore.
This Vchapter Voverviews Vthe Vfinancial Vplanning Vprocess Vand Vexplains Vits Vcontext. VTopics
V include Vhow Vfinancial Vplans Vchange Vto Vaccommodate Vyour Vcurrent Vstage Vin Vlife Vand
Vthe Vrole V that Vfinancial Vplanners Vcan Vplay Vin Vhelping Vyou Vachieve Vyour Vobjectives.
VAfter Vreading Vthis V chapter Vyou Vwill Vhave Va Vgood Vperspective Von Vhow Vto Vorganize
Vyour Voverall Vpersonal V financial Vplan.
LEARNING GOALS V
LG1 VIdentify Vthe Vbenefits Vof Vusing Vpersonal Vfinancial Vplanning Vtechniques Vto
Vmanage V your Vfinances.
Key Vconcept Vin Vthis Vsection Vis Vthe Vplanning Vmodel Vas Vdisplayed Vin VExhibit V1.1. VYour
V standard Vof Vliving Vis Vgreatly Vimpacted Vby Vyour Vspending Vhabits Vand Vyour Vcommitment
Vto V saving. VYour Vspending Vis Vmeasured Vby Vyour Vpropensity Vto Vconsume. VWealth Vis
Vthe Vtotal V value Vof Vall Vproperty Vyou Vown Vless Vthe Vamount Vthat Vyou Vowe Vto Vothers.
ACTIVITY: V Ask Vthe Vstudents Vto Vassume Vthat Vthey Vhave Vjust Vinherited V$100,000. VWhat
Vwill V you Vdo Vwith Vthe Vmoney? VWrite Vdown Vthree Vways Vyou Vwill Vspend Vor Vuse Vthe
Vmoney.
, Ask V the V students V to V share V one V item V with V the V class V and V record V what V they V say
V so V that V the V entire V class V can V reflect V on V the V answers. V Hopefully, V at V least V a V few
V will V mention V investing V even V if V only V $10,000 V of V the V amount. V Use V their V answers
V to V discuss V taking V care V of V current V needs Vversus Vfuture Vneeds.
Focus Von Vtheir Vpropensity Vto Vconsume Vand Vits Vimpact Von Vaccumulating Vwealth. VPoint
Vout Vthe V Financial VPlanning VTip, V―Be VSMART Vin VPlanning VYour VFinancial VGoals.‖
Use VExhibit V1.2 Vto Vshow Vhow Vthe Vaverage Vperson Vearns Vand Vspends Vtheir Vmoney Vand
VExhibit
1.6 Vto Vhelp Vthe Vstudent Videntify Vwhere Vthey Vare Vnow.
LG2 VDescribe Vthe Vpersonal Vfinancial Vplanning Vprocess Vand Vdefine Vyour Vgoals.
Dwight VEisenhower,Varmy VgeneralVand Vpresident, Vis Vquoted Vas Vsaying V―Plans VareVuseless;
V Planning Vis Vpriceless‖. VThe Vprocess Vof Vplanning Vallows Vyou Vto Vfocus Von Vthe Vissues
Vthat Vare V most Vimportant Vand Vto Vbe Vready Vwhen Vthings Vchange.
Exhibit V1.3 Vlists Vthe VSix VStep VFinancial VPlanning VProcess. VThe Vfirst Vand Vmost Vimportant
Vis V defining Vyour Vfinancial Vgoals. VExhibit V1.6 Vlists Vgoals Vby Vage Vto Vdemonstrate Vhow
Vgoals V change Vover Vtime. VUse Vthe Vexamples Vin VExhibit V1.5 Vto Vask Vstudents Vif Vthe
Vassumptions Vare V realistic. VYes, Vthe Vanswer Vis Vin Vthe Vexhibit, Vbut Vmany Vwill Vnot Vhave
Vread Vchapter Vat Vthis Vpoint. V For Vyour Vuse, Vthe Vassumptions Vare:
Assumption V 1: V Saving V a V few V thousand V dollars Va V year V should V provide V enough Vto
V fund V my
child‘s Vcollege VEducation.
Assumption V2: VAn Vemergency Vfund Vlasting V3 Vmonths Vshould Vbe Vadequate. V
V Assumption V 3: V I V will V be V able V to V retire V at V 65 V and V should V have V plenty
V to V live V on V in V retirement. V Assumption V 4: V I‘m V relying V on V the V rule V of V thumb
V that V I V will V need V only V 70 V percent Vof Vmy Vpre- Vretirement Vincome Vto Vmanage
Vnicely Vin Vretirement.
There Vare Vseveral Vworksheets Vin Vthe Vbook. VWorksheet V1.1 Vgives Vthe Vstudent Va Vformat
Vto V write Vdown Vtheir VPersonal VFinancial VGoals. VThere Vis Vpower Vin Vwriting Vdown Vgoals
V[and Vmost V any Vother Vplan]. VRecording Vthe Vgoal Vand Vthen Vreviewing Vthree Vmonths
Vlater Vwill Vhelp Vyou Vto V keep Vfocus Von Vthe Vgoal.
LG3 V Explain V the V life V cycle V of V financial V plans, V their V role V in V achieving V your
V financial V goals, V how V to V deal V with V special V planning Vconcerns, V and V the V use
V of V professional V financial Vplanners.
Exhibit V1.7 Vcan Vhelp Vfocus Vthe Vattention Von Vhow Vgoals Vdiffer Vbetween Vthe Vvarious
Vstages Vof V life. VSection V1-3b Vlists Vvarious Vdecisions Vthat Vyou Vwill Vhave Vto Vmake Vover
Vyour Vlife. VThe V section V1-3c Vaddresses VSpecial VPlanning VConcerns. VWorksheet V1.2
Vfocuses Von Vthe Vfinancial V benefit Vto Vthe Vfamily Vof Vthe Vsecond Vincome. VIf Vthe Vsecond
Vincome Vis Vfrom Va Vminimum Vwage V job, Vit Vmay Vnot Vbe Va Vgood Vfinancial Vdecision. VOf
Vcourse Vhaving Va Vjob, Veven Va Vminimum Vwage V job, Vmay Vgive Vthe Vperson Vpsychic Vincome
Vthat Vwill Voverride Vthe Vfinancial Vimpact.
While V perhaps V off V topic, V I V recall V a V high V school V science V teacher V who V was V a
V smoker. V He V walked V through V the V amount V of V money V he V spent V on V purchasing
Planning 16th Edition by Billingsley & Gitman,
All Chapters 1 – 15
, 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 Vin VStocks Vand VBonds.
13. Investing Vin VMutual VFunds Vand VReal
Estate. V Part VVI: VRETIREMENT VAND VESTATE
V
PLANNING.
V
14. Planning Vfor VRetirement.
15. Preserving VYour VEstate.
Chapter 1 Understanding the Financial Planning Process
How VWill VThis VAffect VMe?
The Vheart Vof Vfinancial Vplanning Vis Vmaking Vsure Vyour Vvalues Vline Vup Vwith Vhow Vyou
Vspend Vand V save. VThat Vmeans Vknowing Vwhere Vyou Vare Vfinancially Vand Vplanning Von
Vhow Vto Vget Vwhere Vyou V want Vto Vbe Vin Vthe Vfuture Vno Vmatter Vwhat Vlife Vthrows Vat Vyou.
VFor Vexample, Vhow Vshould Vyour V plan Vhandle Vthe Vprojection Vthat VSocial VSecurity Vcosts
Vmay Vexceed Vrevenues Vby V2035? VAnd V what Vif Vthe Vgovernment Vdecides Vto Vraise Vtax
Vrates Vto Vhelp Vcover Vthe Vfederal Vdeficit? VAn V informed Vfinancial Vplan Vshould Vreflect
Vsuch Vuncertainties Vand Vmore.
This Vchapter Voverviews Vthe Vfinancial Vplanning Vprocess Vand Vexplains Vits Vcontext. VTopics
V include Vhow Vfinancial Vplans Vchange Vto Vaccommodate Vyour Vcurrent Vstage Vin Vlife Vand
Vthe Vrole V that Vfinancial Vplanners Vcan Vplay Vin Vhelping Vyou Vachieve Vyour Vobjectives.
VAfter Vreading Vthis V chapter Vyou Vwill Vhave Va Vgood Vperspective Von Vhow Vto Vorganize
Vyour Voverall Vpersonal V financial Vplan.
LEARNING GOALS V
LG1 VIdentify Vthe Vbenefits Vof Vusing Vpersonal Vfinancial Vplanning Vtechniques Vto
Vmanage V your Vfinances.
Key Vconcept Vin Vthis Vsection Vis Vthe Vplanning Vmodel Vas Vdisplayed Vin VExhibit V1.1. VYour
V standard Vof Vliving Vis Vgreatly Vimpacted Vby Vyour Vspending Vhabits Vand Vyour Vcommitment
Vto V saving. VYour Vspending Vis Vmeasured Vby Vyour Vpropensity Vto Vconsume. VWealth Vis
Vthe Vtotal V value Vof Vall Vproperty Vyou Vown Vless Vthe Vamount Vthat Vyou Vowe Vto Vothers.
ACTIVITY: V Ask Vthe Vstudents Vto Vassume Vthat Vthey Vhave Vjust Vinherited V$100,000. VWhat
Vwill V you Vdo Vwith Vthe Vmoney? VWrite Vdown Vthree Vways Vyou Vwill Vspend Vor Vuse Vthe
Vmoney.
, Ask V the V students V to V share V one V item V with V the V class V and V record V what V they V say
V so V that V the V entire V class V can V reflect V on V the V answers. V Hopefully, V at V least V a V few
V will V mention V investing V even V if V only V $10,000 V of V the V amount. V Use V their V answers
V to V discuss V taking V care V of V current V needs Vversus Vfuture Vneeds.
Focus Von Vtheir Vpropensity Vto Vconsume Vand Vits Vimpact Von Vaccumulating Vwealth. VPoint
Vout Vthe V Financial VPlanning VTip, V―Be VSMART Vin VPlanning VYour VFinancial VGoals.‖
Use VExhibit V1.2 Vto Vshow Vhow Vthe Vaverage Vperson Vearns Vand Vspends Vtheir Vmoney Vand
VExhibit
1.6 Vto Vhelp Vthe Vstudent Videntify Vwhere Vthey Vare Vnow.
LG2 VDescribe Vthe Vpersonal Vfinancial Vplanning Vprocess Vand Vdefine Vyour Vgoals.
Dwight VEisenhower,Varmy VgeneralVand Vpresident, Vis Vquoted Vas Vsaying V―Plans VareVuseless;
V Planning Vis Vpriceless‖. VThe Vprocess Vof Vplanning Vallows Vyou Vto Vfocus Von Vthe Vissues
Vthat Vare V most Vimportant Vand Vto Vbe Vready Vwhen Vthings Vchange.
Exhibit V1.3 Vlists Vthe VSix VStep VFinancial VPlanning VProcess. VThe Vfirst Vand Vmost Vimportant
Vis V defining Vyour Vfinancial Vgoals. VExhibit V1.6 Vlists Vgoals Vby Vage Vto Vdemonstrate Vhow
Vgoals V change Vover Vtime. VUse Vthe Vexamples Vin VExhibit V1.5 Vto Vask Vstudents Vif Vthe
Vassumptions Vare V realistic. VYes, Vthe Vanswer Vis Vin Vthe Vexhibit, Vbut Vmany Vwill Vnot Vhave
Vread Vchapter Vat Vthis Vpoint. V For Vyour Vuse, Vthe Vassumptions Vare:
Assumption V 1: V Saving V a V few V thousand V dollars Va V year V should V provide V enough Vto
V fund V my
child‘s Vcollege VEducation.
Assumption V2: VAn Vemergency Vfund Vlasting V3 Vmonths Vshould Vbe Vadequate. V
V Assumption V 3: V I V will V be V able V to V retire V at V 65 V and V should V have V plenty
V to V live V on V in V retirement. V Assumption V 4: V I‘m V relying V on V the V rule V of V thumb
V that V I V will V need V only V 70 V percent Vof Vmy Vpre- Vretirement Vincome Vto Vmanage
Vnicely Vin Vretirement.
There Vare Vseveral Vworksheets Vin Vthe Vbook. VWorksheet V1.1 Vgives Vthe Vstudent Va Vformat
Vto V write Vdown Vtheir VPersonal VFinancial VGoals. VThere Vis Vpower Vin Vwriting Vdown Vgoals
V[and Vmost V any Vother Vplan]. VRecording Vthe Vgoal Vand Vthen Vreviewing Vthree Vmonths
Vlater Vwill Vhelp Vyou Vto V keep Vfocus Von Vthe Vgoal.
LG3 V Explain V the V life V cycle V of V financial V plans, V their V role V in V achieving V your
V financial V goals, V how V to V deal V with V special V planning Vconcerns, V and V the V use
V of V professional V financial Vplanners.
Exhibit V1.7 Vcan Vhelp Vfocus Vthe Vattention Von Vhow Vgoals Vdiffer Vbetween Vthe Vvarious
Vstages Vof V life. VSection V1-3b Vlists Vvarious Vdecisions Vthat Vyou Vwill Vhave Vto Vmake Vover
Vyour Vlife. VThe V section V1-3c Vaddresses VSpecial VPlanning VConcerns. VWorksheet V1.2
Vfocuses Von Vthe Vfinancial V benefit Vto Vthe Vfamily Vof Vthe Vsecond Vincome. VIf Vthe Vsecond
Vincome Vis Vfrom Va Vminimum Vwage V job, Vit Vmay Vnot Vbe Va Vgood Vfinancial Vdecision. VOf
Vcourse Vhaving Va Vjob, Veven Va Vminimum Vwage V job, Vmay Vgive Vthe Vperson Vpsychic Vincome
Vthat Vwill Voverride Vthe Vfinancial Vimpact.
While V perhaps V off V topic, V I V recall V a V high V school V science V teacher V who V was V a
V smoker. V He V walked V through V the V amount V of V money V he V spent V on V purchasing
