SOLUTION MANUAL
Personal Financial Planning, 16th Edition
by Billingsley, 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 property you own less
the amount that you owe to others.
ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will you do
with the money? Write down three ways you will spend or use the money.
, AskStheSstudentsStoSshareSoneSitemSwithStheSclassSandSrecordSwhatStheySsaySsoSthatStheSentireSclassScanS
reflectSonStheSanswers.SHopefully,SatSleastSaSfewSwillSmentionSinvestingSevenSifSonlyS$10,000SofStheSa
mount.S UseStheirSanswersStoSdiscussStakingScareSofScurrentSneedsSversusSfutureSneeds.
FocusSonStheirSpropensityStoSconsumeSandSitsSimpactSonSaccumulatingSwealth.SPointSoutStheSFinancialSPl
anningSTip,S―BeSSMARTSinSPlanningS YourSFinancialSGoals.‖
UseSExhibitS1.2StoSshowShowStheSaverageSpersonSearnsSandSspendsStheirSmoneySandSExhibitS1.6StoShel
pStheSstudentSidentifySwhereStheySareSnow.
LG2SDescribeStheSpersonalSfinancialSplanningSprocessSandSdefineSyourSgoals.
DwightSEisenhower,SarmySgeneralSandSpresident,S isSquotedSasSsayingS ―PlansSareSuseless;SPlanningSisSp
riceless‖.STheSprocessSofSplanningSallowsSyouStoSfocusSonStheSissuesSthatSareSmostSimportantSandStoSbeS
readySwhenSthingsSchange.
ExhibitS1.3SlistsStheSSixSStepSFinancialSPlanningSProcess.STheSfirstSandSmostSimportantSisSdefiningSyou
rSfinancialSgoals.SExhibitS1.6SlistsSgoalsSbySageStoSdemonstrateShowSgoalsSchangeSoverStime.SUseSthe
SexamplesSinSExhibitS 1.5StoSaskSstudentsSifStheSassumptionsSareSrealistic.SYes,StheSanswerSisSinStheSexhi
bit,SbutSmanySwillSnotShaveSreadSchapterSatSthisSpoint.SForSyourSuse,StheSassumptionsSare:
AssumptionS1:SSavingSaSfewSthousandSdollarsSaSyearSshouldSprovideSenoughStoSfundSmySchild‘sScoll
egeSEducation.
AssumptionS2:SAnSemergencySfundSlastingS3SmonthsSshouldSbeSadequate.
AssumptionS3:SISwillSbeSableStoSretireSatS65SandSshouldShaveSplentyStoSliveSonSinSretirement.SAs
sumptionS4:SI‘mSrelyingSonStheSruleSofSthumbSthatSISwillSneedSonlyS70SpercentSofSmySpre-
SretirementS incomeStoS manageS nicelySinSretirement.
ThereSareSseveralSworksheetsSinStheSbook.SWorksheetS1.1SgivesStheSstudentSaSformatStoSwriteSdownS
theirSPersonalSFinancialSGoals.SThereSisSpowerSinSwritingSdownSgoalsS[andSmostSanySotherSplan].SRec
ordingStheSgoalSandSthenSreviewingSthreeSmonthsSlaterSwillShelpSyouStoSkeepSfocusSonStheSgoal.
LG3SExplainStheSlifeScycleSofSfinancialSplans,StheirSroleSinSachievingSyourSfinancialSgoals,ShowSt
oSdealSwithSspecialSplanningSconcerns,SandStheSuseSofSprofessionalSfinancialSplanners.
ExhibitS1.7ScanShelpSfocusStheSattentionSonShowSgoalsSdifferSbetweenStheSvariousSstagesSofSlife.SSectio
nS1-3bSlistsSvariousSdecisionsSthatSyouSwillShaveStoSmakeSoverSyourSlife.STheSsectionS1-
3cSaddressesSSpecialSPlanningSConcerns.SWorksheetS1.2SfocusesSonStheSfinancialSbenefitStoStheSfamil
ySofStheSsecondSincome.SIfStheSsecondSincomeSisSfromSaSminimumSwageSjob,SitSmaySnotSbeSaSgoodSfinan
cialSdecision.SOfScourseShavingSaSjob,SevenSaSminimumSwageSjob,SmaySgiveStheSpersonSpsychicSincomeS
thatS willSoverrideStheSfinancialSimpact.
WhileSperhapsSoffStopic,SISrecallSaShighSschoolSscienceSteacherSwhoSwasSaSsmoker.SHeSwalkedSthrough
StheSamountSofSmoneySheSspentSonSpurchasingStobaccoSproducts.S ThatScomputationShadSa
Personal Financial Planning, 16th Edition
by Billingsley, 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 property you own less
the amount that you owe to others.
ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will you do
with the money? Write down three ways you will spend or use the money.
, AskStheSstudentsStoSshareSoneSitemSwithStheSclassSandSrecordSwhatStheySsaySsoSthatStheSentireSclassScanS
reflectSonStheSanswers.SHopefully,SatSleastSaSfewSwillSmentionSinvestingSevenSifSonlyS$10,000SofStheSa
mount.S UseStheirSanswersStoSdiscussStakingScareSofScurrentSneedsSversusSfutureSneeds.
FocusSonStheirSpropensityStoSconsumeSandSitsSimpactSonSaccumulatingSwealth.SPointSoutStheSFinancialSPl
anningSTip,S―BeSSMARTSinSPlanningS YourSFinancialSGoals.‖
UseSExhibitS1.2StoSshowShowStheSaverageSpersonSearnsSandSspendsStheirSmoneySandSExhibitS1.6StoShel
pStheSstudentSidentifySwhereStheySareSnow.
LG2SDescribeStheSpersonalSfinancialSplanningSprocessSandSdefineSyourSgoals.
DwightSEisenhower,SarmySgeneralSandSpresident,S isSquotedSasSsayingS ―PlansSareSuseless;SPlanningSisSp
riceless‖.STheSprocessSofSplanningSallowsSyouStoSfocusSonStheSissuesSthatSareSmostSimportantSandStoSbeS
readySwhenSthingsSchange.
ExhibitS1.3SlistsStheSSixSStepSFinancialSPlanningSProcess.STheSfirstSandSmostSimportantSisSdefiningSyou
rSfinancialSgoals.SExhibitS1.6SlistsSgoalsSbySageStoSdemonstrateShowSgoalsSchangeSoverStime.SUseSthe
SexamplesSinSExhibitS 1.5StoSaskSstudentsSifStheSassumptionsSareSrealistic.SYes,StheSanswerSisSinStheSexhi
bit,SbutSmanySwillSnotShaveSreadSchapterSatSthisSpoint.SForSyourSuse,StheSassumptionsSare:
AssumptionS1:SSavingSaSfewSthousandSdollarsSaSyearSshouldSprovideSenoughStoSfundSmySchild‘sScoll
egeSEducation.
AssumptionS2:SAnSemergencySfundSlastingS3SmonthsSshouldSbeSadequate.
AssumptionS3:SISwillSbeSableStoSretireSatS65SandSshouldShaveSplentyStoSliveSonSinSretirement.SAs
sumptionS4:SI‘mSrelyingSonStheSruleSofSthumbSthatSISwillSneedSonlyS70SpercentSofSmySpre-
SretirementS incomeStoS manageS nicelySinSretirement.
ThereSareSseveralSworksheetsSinStheSbook.SWorksheetS1.1SgivesStheSstudentSaSformatStoSwriteSdownS
theirSPersonalSFinancialSGoals.SThereSisSpowerSinSwritingSdownSgoalsS[andSmostSanySotherSplan].SRec
ordingStheSgoalSandSthenSreviewingSthreeSmonthsSlaterSwillShelpSyouStoSkeepSfocusSonStheSgoal.
LG3SExplainStheSlifeScycleSofSfinancialSplans,StheirSroleSinSachievingSyourSfinancialSgoals,ShowSt
oSdealSwithSspecialSplanningSconcerns,SandStheSuseSofSprofessionalSfinancialSplanners.
ExhibitS1.7ScanShelpSfocusStheSattentionSonShowSgoalsSdifferSbetweenStheSvariousSstagesSofSlife.SSectio
nS1-3bSlistsSvariousSdecisionsSthatSyouSwillShaveStoSmakeSoverSyourSlife.STheSsectionS1-
3cSaddressesSSpecialSPlanningSConcerns.SWorksheetS1.2SfocusesSonStheSfinancialSbenefitStoStheSfamil
ySofStheSsecondSincome.SIfStheSsecondSincomeSisSfromSaSminimumSwageSjob,SitSmaySnotSbeSaSgoodSfinan
cialSdecision.SOfScourseShavingSaSjob,SevenSaSminimumSwageSjob,SmaySgiveStheSpersonSpsychicSincomeS
thatS willSoverrideStheSfinancialSimpact.
WhileSperhapsSoffStopic,SISrecallSaShighSschoolSscienceSteacherSwhoSwasSaSsmoker.SHeSwalkedSthrough
StheSamountSofSmoneySheSspentSonSpurchasingStobaccoSproducts.S ThatScomputationShadSa
