SOLUTION MANUAL
Personal Financial Planning,16th Edition
by Randy Billingsley, Lawrence J. Gitman, Chapters 1 - 15, Complete
,
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 in Stocks and Bonds.
13. Investing in Mutual Funds and Real Estate. Part
VI: RETIREMENT AND ESTATE PLANNING.
14. Planning for Retirement.
15. Preserving Your Estate.
,
Chapter 1
Understanding the Financial Planning Process
How Will This Affect Me?
The heart of financial planning is making sure your values line up with how you spend and save. That
means knowing where you are financially and planning on how to get where you want to be in the future
no matter what life throws at you. For example, how should your plan handle the projection that Social
Security costs may exceed revenues by 2035? And what if the government decides to raise tax rates to
help cover the federal deficit? An informed financial plan should reflect such uncertainties and more.
This chapter overviews the financial planning process and explains its context. Topics include how financial
plans change to accommodate your current stage in life and the role that financial planners can play in
helping you achieve your objectives. After reading this chapter you will have a good perspective on
how to organize your overall personal financial plan.
LEARNING GOALS
LG1 Identify the benefits of using personal financial planning techniques to manage your finances.
Key concept in this section is the planning model as displayed in Exhibit 1.1. Your standard of living is
greatly impacted by your spending habits and your commitment to saving. Your spending is measured by
your propensity to consume. Wealth is the total value of all propertyyou own less the amount that you
owe to others.
ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will youdo with the
money? Write down three ways you will spend or use the money.
,
Ask the students to share one item with the class and record what they say so that the entire class can reflect
on the answers. Hopefully, at least a few will mention investing even if only $10,000 of the amount. Use
their answers to discuss taking care of current needs versus future needs.
Focus on their propensity to consume and its impact on accumulating wealth. Point out the Financial
Planning Tip, ―Be SMART in Planning Your Financial Goals.‖
Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit 1.6 to help the
student identify where they are now.
LG2 Describe the personal financial planning process and define your goals.
Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless; Planning is
priceless‖. The process of planning allows you to focus on the issues that are most important and to be
ready when things change.
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is defining your
financial goals. Exhibit 1.6 lists goals by age to demonstrate how goals change over time. Use the
examples in Exhibit 1.5 to ask students if the assumptions are realistic. Yes,the answer is in the exhibit, but
many will not have read chapter at this point. For your use, theassumptions are:
Assumption 1: Saving a few thousand dollars a year should provide enough to fund my child‘s college
Education.
Assumption 2: An emergency fund lasting 3 months should be adequate.
Assumption 3: I will be able to retire at 65 and should have plenty to live on in retirement.
Assumption 4: I‘m relying on the rule of thumb that I will need only 70 percent of my pre-
retirement income to manage nicely in retirement.
There are several worksheets in the book. Worksheet 1.1 gives the student a format to write down their
Personal Financial Goals. There is power in writing down goals [and most any other plan]. Recording the
goal and then reviewing three months later will help you to keep focus on the goal.
LG3 Explain the life cycle of financial plans, their role in achieving your financial goals, how to deal
with special planning concerns, and the use of professional financial planners.
Exhibit 1.7 can help focus the attention on how goals differ between the various stages of life. Section 1-3b
lists various decisions that you will have to make over your life. The section 1-3c addresses Special
Planning Concerns. Worksheet 1.2 focuses on the financial benefit to the family of the second income. If
the second income is from a minimum wage job, it may not be a good financial decision. Of course having
a job, even a minimum wage job, may give the person psychic income that will override the financial
impact.
While perhaps off topic, I recall a high school science teacher who was a smoker. He walked through
the amount of money he spent on purchasing tobacco products. That computation had a
Personal Financial Planning,16th Edition
by Randy Billingsley, Lawrence J. Gitman, Chapters 1 - 15, Complete
,
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 in Stocks and Bonds.
13. Investing in Mutual Funds and Real Estate. Part
VI: RETIREMENT AND ESTATE PLANNING.
14. Planning for Retirement.
15. Preserving Your Estate.
,
Chapter 1
Understanding the Financial Planning Process
How Will This Affect Me?
The heart of financial planning is making sure your values line up with how you spend and save. That
means knowing where you are financially and planning on how to get where you want to be in the future
no matter what life throws at you. For example, how should your plan handle the projection that Social
Security costs may exceed revenues by 2035? And what if the government decides to raise tax rates to
help cover the federal deficit? An informed financial plan should reflect such uncertainties and more.
This chapter overviews the financial planning process and explains its context. Topics include how financial
plans change to accommodate your current stage in life and the role that financial planners can play in
helping you achieve your objectives. After reading this chapter you will have a good perspective on
how to organize your overall personal financial plan.
LEARNING GOALS
LG1 Identify the benefits of using personal financial planning techniques to manage your finances.
Key concept in this section is the planning model as displayed in Exhibit 1.1. Your standard of living is
greatly impacted by your spending habits and your commitment to saving. Your spending is measured by
your propensity to consume. Wealth is the total value of all propertyyou own less the amount that you
owe to others.
ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will youdo with the
money? Write down three ways you will spend or use the money.
,
Ask the students to share one item with the class and record what they say so that the entire class can reflect
on the answers. Hopefully, at least a few will mention investing even if only $10,000 of the amount. Use
their answers to discuss taking care of current needs versus future needs.
Focus on their propensity to consume and its impact on accumulating wealth. Point out the Financial
Planning Tip, ―Be SMART in Planning Your Financial Goals.‖
Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit 1.6 to help the
student identify where they are now.
LG2 Describe the personal financial planning process and define your goals.
Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless; Planning is
priceless‖. The process of planning allows you to focus on the issues that are most important and to be
ready when things change.
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is defining your
financial goals. Exhibit 1.6 lists goals by age to demonstrate how goals change over time. Use the
examples in Exhibit 1.5 to ask students if the assumptions are realistic. Yes,the answer is in the exhibit, but
many will not have read chapter at this point. For your use, theassumptions are:
Assumption 1: Saving a few thousand dollars a year should provide enough to fund my child‘s college
Education.
Assumption 2: An emergency fund lasting 3 months should be adequate.
Assumption 3: I will be able to retire at 65 and should have plenty to live on in retirement.
Assumption 4: I‘m relying on the rule of thumb that I will need only 70 percent of my pre-
retirement income to manage nicely in retirement.
There are several worksheets in the book. Worksheet 1.1 gives the student a format to write down their
Personal Financial Goals. There is power in writing down goals [and most any other plan]. Recording the
goal and then reviewing three months later will help you to keep focus on the goal.
LG3 Explain the life cycle of financial plans, their role in achieving your financial goals, how to deal
with special planning concerns, and the use of professional financial planners.
Exhibit 1.7 can help focus the attention on how goals differ between the various stages of life. Section 1-3b
lists various decisions that you will have to make over your life. The section 1-3c addresses Special
Planning Concerns. Worksheet 1.2 focuses on the financial benefit to the family of the second income. If
the second income is from a minimum wage job, it may not be a good financial decision. Of course having
a job, even a minimum wage job, may give the person psychic income that will override the financial
impact.
While perhaps off topic, I recall a high school science teacher who was a smoker. He walked through
the amount of money he spent on purchasing tobacco products. That computation had a
