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 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.
, 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, the assumptions 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
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 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.
, 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, the assumptions 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
