Solution Manual for Personal Financial Planning 15t
h h h h h hh
h Edition by Randy Billingsley, Lawrence J. Gitman,
h h h h h h hh
Michael D. Joehnk
h h
,SOLUTION MANUAL FOR h h
Personal Financial Planning 15th Edition by Randy Billingsley
h h h h h h h
, Lawrence J. Gitman, Michael D. Joehnk
h h h h h h
Understanding the Financi h hh
al Planning Process Chapter
h h h
1
h
HowhWillhThishAffecthMe?
Thehhearthofhfinancialhplanninghishmakinghsurehyourhvalueshlinehuphwithhhowhyouhspendhandhsave.hT
hathmeanshknowinghwherehyouharehfinanciallyhandhplanninghonhhowhtohgethwherehyouhwanthtohbehinht
hehfuturehnohmatterhwhathlifehthrowshathyou.hForhexample,hhowhshouldhyourhplanhhandlehthehprojecti
onhthathSocialhSecurityhcostshmayhexceedhrevenueshbyh2035?hAndhwhathifhthehgovernmenthdecideshto
hraisehtaxhrateshtohhelphcoverhthehfederalhdeficit?hAnhinformedhfinancialhplanhshouldhreflecthsuchhunc
ertaintieshandhmore.
Thishchapterhoverviewshthehfinancialhplanninghprocesshandhexplainshitshcontext.hTopicshincludehho
whfinancialhplanshchangehtohaccommodatehyourhcurrenthstagehinhlifehandhthehrolehthathfinancialhplan
nershcanhplayhinhhelpinghyouhachievehyourhobjectives.hAfterhreadinghthishchapterhyouhwillhhavehahg
oodhperspectivehonhhowhtohorganizehyourhoverallhpersonalhfinancialhplan.
LEARNING GOALS h
LG1hIdentifyhthehbenefitshofhusinghpersonalhfinancialhplanninghtechniqueshtohmanagehyourhfin
ances.
KeyhconcepthinhthishsectionhishthehplanninghmodelhashdisplayedhinhExhibith1.1.hYourhstandardhofhliv
inghishgreatlyhimpactedhbyhyourhspendinghhabitshandhyourhcommitmenthtohsaving.hYourhspendinghi
shmeasuredhbyhyourhpropensityhtohconsume.hWealthhishthehtotalhvaluehofhallhpropertyh youhownhle
sshthehamounththathyouhowehtohothers.
ACTIVITY:h Askhthehstudentshtohassumehthaththeyhhavehjusthinheritedh$100,000.hWhathwillhyouhdoh
withhthehmoney?hWritehdownhthreehwayshyouhwillhspendhorhusehthehmoney.
,Askhthehstudentshtohsharehonehitemhwithhthehclasshandhrecordhwhaththeyhsayhsohthaththehentirehclasshc
anhreflecthonhthehanswers.hHopefully,hathleasthahfewhwillhmentionhinvestinghevenhifhonlyh$10,000hofh
thehamount.h Usehtheirhanswershtohdiscusshtakinghcarehofhcurrenthneedshversushfuturehneeds.
Focushonhtheirhpropensityhtohconsumehandhitshimpacthonhaccumulatinghwealth.hPointhouththehFinancia
lhPlanninghTip,h―BehSMARThinhPlanninghYourhFinancialhGoals.‖
UsehExhibith1.2htohshowhhowhthehaveragehpersonhearnshandhspendshtheirhmoneyhandhExhibith1.6htohhe
lphthehstudenthidentifyhwherehtheyharehnow.
LG2hDescribehthehpersonalhfinancialhplanninghprocesshandhdefinehyourhgoals.
DwighthEisenhower,harmyhgeneralhandhpresident,hishquotedhashsayingh―Plansharehuseless;hPlanninghi
shpriceless‖.hThehprocesshofhplanninghallowshyouhtohfocushonhthehissueshthatharehmosthimportanthan
dhtohbehreadyhwhenhthingshchange.
Exhibith1.3hlistshthehSixhStephFinancialhPlanninghProcess.hThehfirsthandhmosthimportanthishdefining
h yourhfinancialhgoals.hExhibith1.6hlistshgoalshbyhagehtohdemonstratehhowhgoalshchangehoverhtime.hU
sehthehexampleshinhExhibith1.5htohaskhstudentshifhthehassumptionsharehrealistic.hYes,hthehanswerhishin
hthehexhibit,hbuthmanyhwillhnothhavehreadhchapterhaththishpoint.hForhyourhuse,hthehassumptionshare:
Assumptionh1:hSavinghahfewhthousandhdollarshahyearhshouldhprovidehenoughhtohfundhmyhchild‘shc
ollegehEducation.
Assumptionh2:hAnhemergencyhfundhlastingh3h monthshshouldhbehadequate.
Assumptionh3:hIhwillhbehablehtohretirehath65handhshouldhhavehplentyhtohlivehonhinhretirement.hA
ssumptionh4:hI‘mhrelyinghonhthehrulehofhthumbhthathIhwillhneedhonlyh70hpercenthofhmyhpre-
hretirementhincomehtohmanagehnicelyhinhretirement.
Thereharehseveralhworksheetshinhthehbook.hWorksheeth1.1hgiveshthehstudenthahformathtohwritehdown
htheirhPersonalhFinancialhGoals.hTherehishpowerhinhwritinghdownhgoalsh[andhmosthanyhotherhplan].hR
ecordinghthehgoalhandhthenhreviewinghthreehmonthshlaterhwillhhelphyouhtohkeephfocushonhthehgoal.
LG3hExplainhthehlifehcyclehofhfinancialhplans,htheirhrolehinhachievinghyourhfinancialhgoals,hh
owhtohdealhwithhspecialhplanninghconcerns,handhthehusehofhprofessionalhfinancialhplanners.
Exhibith1.7hcanhhelphfocushthehattentionhonhhowhgoalshdifferhbetweenhthehvarioushstageshofhlife.hSe
ctionh1-3bhlistshvarioushdecisionshthathyouhwillhhavehtohmakehoverhyourhlife.hThehsectionh1-
3chaddresseshSpecialhPlanninghConcerns.hWorksheeth1.2hfocuseshonhthehfinancialhbenefithtohthehfa
milyhofhthehsecondhincome.hIfhthehsecondhincomehishfromhahminimumhwagehjob,hithmayhnothbehahgoo
dhfinancialhdecision.hOfhcoursehhavinghahjob,hevenhahminimumhwagehjob,hmayhgivehthehpersonhpsyc
hichincomehthathwillhoverridehthehfinancialhimpact.
Whilehperhapshoffhtopic,hIhrecallhahhighhschoolhsciencehteacherhwhohwashahsmoker.hHehwalkedhthro
ughhthehamounthofhmoneyhhehspenthonhpurchasinghtobaccoh products.h Thathcomputationhhadha
, lothtohdohwithhmyhdecisionhtohnothsmoke.hHowhthishrelateshtohthehcoursehishthaththishishanhillustrationh
ofhhowhthehfinancialhimpacthofhahdecisionhcanhdrivehthehdecision.
LG4hExaminehtheheconomichenvironment’shinfluencehonhpersonalhfinancialhplanning.
Forholderhfolks,hthehfinancialhcrisishofh2008-
2009hishfreshhinhourhmemory.hTohthehstudenthofh2021,hthathcrisishishmorehofhhistoryhthanhlife.hIfhyouhc
anhsharehahwarhstoryhonhhowhyouhwerehpersonallyhimpacted,hithwillhhelphbringhthehimpacthofhthehworl
dheconomyhonhfinancialhplanshtohlife.hThehbookhspeakshhowhtohmanagehthishtypehofhcrisis,hbuthyouhha
dhtohgohthroughhithtohreallyhunderstandhthehimpacthithhad.
Thehvaluehofhprofessionalhadvicehishgreatlyhunderstated.hIfhbyhtalkinghtohahprofessionalhyouhcanhprev
enthmakinghahmistakeh--hthathcanhbehofhahgreathvalue.hSectionh1-
3ehspeakshtohthehusehofhprofessionalhfinancialhplanners.h Exhibith1.9hlistshouththehvarioushcertification
shthathplannershhave.
Economichorhbusinesshcyclesharehreal.hPerhapshthehmosthusefulhthinghabouththehcycleshishthehknowle
dgehthathifhthingsharehbad,hyouhknowhtheyhwillhgethbetter.h Ofhcourse,hwhenhlifehishgood,hyouhknowht
haththehbadhcyclehwillhcomeharoundhagain.h Thus,hfinancialhplanninghrequireshsavinghinhthehgoodhtim
eshforhthehbadhtimes.h Seehtheh―TesthYourself‖hquestionh1-
17hforhahshorthdiscussionhofhbusinesshcycles.
Thehpowerhofhcompoundinghishrarelyhunderstood.hExhibith1.8hshowshhowhthehamounth$10,000hwillh
growhoverhtime.hThehlongerhthehinvestmenthstayshinvested,hthehgreaterhthehamounth–
hthehpowerhofhcompoundhinterest.
LG5hEvaluatehthehimpacthofhage,heducation,handhgeographichlocationhonhpersonalhincome.
Exhibith1.12hsayshithall.
LG6hUnderstandhthehimportancehofhcareerhchoiceshandhtheirhrelationshiphtohpersonalhfinancia
lhplanning.
Exhibith1.13hshowshthaththehchoicehofhahcollegehmajorhhashahfinancialhimpact.hOfhcoursehmoneyhcann
othbuyhhappiness,hbuthhavinghahbithhelps.hIfhyouhreallyhwanthtohbehanhelementaryhschoolhteacher,hyouh
musthrecognizehthathyouhwillhnothhavehashmuchhwealthhashahlawyerhorhfinancialhanalyst.
Thehsummaryhofhthehlearninghgoalshaththehendhofhthehchapterhshouldhaidhthehstudenthinhreviewinght
hehchapterhwhenhexamhtimehcomes.hIthwillhbehusefulhtohpointhouthtohthehstudenthhowhtohusehthishma
terial.
LinkhtohSolutionshtohFinancialhPlanninghExercises
Pre-tests
h h h h h hh
h Edition by Randy Billingsley, Lawrence J. Gitman,
h h h h h h hh
Michael D. Joehnk
h h
,SOLUTION MANUAL FOR h h
Personal Financial Planning 15th Edition by Randy Billingsley
h h h h h h h
, Lawrence J. Gitman, Michael D. Joehnk
h h h h h h
Understanding the Financi h hh
al Planning Process Chapter
h h h
1
h
HowhWillhThishAffecthMe?
Thehhearthofhfinancialhplanninghishmakinghsurehyourhvalueshlinehuphwithhhowhyouhspendhandhsave.hT
hathmeanshknowinghwherehyouharehfinanciallyhandhplanninghonhhowhtohgethwherehyouhwanthtohbehinht
hehfuturehnohmatterhwhathlifehthrowshathyou.hForhexample,hhowhshouldhyourhplanhhandlehthehprojecti
onhthathSocialhSecurityhcostshmayhexceedhrevenueshbyh2035?hAndhwhathifhthehgovernmenthdecideshto
hraisehtaxhrateshtohhelphcoverhthehfederalhdeficit?hAnhinformedhfinancialhplanhshouldhreflecthsuchhunc
ertaintieshandhmore.
Thishchapterhoverviewshthehfinancialhplanninghprocesshandhexplainshitshcontext.hTopicshincludehho
whfinancialhplanshchangehtohaccommodatehyourhcurrenthstagehinhlifehandhthehrolehthathfinancialhplan
nershcanhplayhinhhelpinghyouhachievehyourhobjectives.hAfterhreadinghthishchapterhyouhwillhhavehahg
oodhperspectivehonhhowhtohorganizehyourhoverallhpersonalhfinancialhplan.
LEARNING GOALS h
LG1hIdentifyhthehbenefitshofhusinghpersonalhfinancialhplanninghtechniqueshtohmanagehyourhfin
ances.
KeyhconcepthinhthishsectionhishthehplanninghmodelhashdisplayedhinhExhibith1.1.hYourhstandardhofhliv
inghishgreatlyhimpactedhbyhyourhspendinghhabitshandhyourhcommitmenthtohsaving.hYourhspendinghi
shmeasuredhbyhyourhpropensityhtohconsume.hWealthhishthehtotalhvaluehofhallhpropertyh youhownhle
sshthehamounththathyouhowehtohothers.
ACTIVITY:h Askhthehstudentshtohassumehthaththeyhhavehjusthinheritedh$100,000.hWhathwillhyouhdoh
withhthehmoney?hWritehdownhthreehwayshyouhwillhspendhorhusehthehmoney.
,Askhthehstudentshtohsharehonehitemhwithhthehclasshandhrecordhwhaththeyhsayhsohthaththehentirehclasshc
anhreflecthonhthehanswers.hHopefully,hathleasthahfewhwillhmentionhinvestinghevenhifhonlyh$10,000hofh
thehamount.h Usehtheirhanswershtohdiscusshtakinghcarehofhcurrenthneedshversushfuturehneeds.
Focushonhtheirhpropensityhtohconsumehandhitshimpacthonhaccumulatinghwealth.hPointhouththehFinancia
lhPlanninghTip,h―BehSMARThinhPlanninghYourhFinancialhGoals.‖
UsehExhibith1.2htohshowhhowhthehaveragehpersonhearnshandhspendshtheirhmoneyhandhExhibith1.6htohhe
lphthehstudenthidentifyhwherehtheyharehnow.
LG2hDescribehthehpersonalhfinancialhplanninghprocesshandhdefinehyourhgoals.
DwighthEisenhower,harmyhgeneralhandhpresident,hishquotedhashsayingh―Plansharehuseless;hPlanninghi
shpriceless‖.hThehprocesshofhplanninghallowshyouhtohfocushonhthehissueshthatharehmosthimportanthan
dhtohbehreadyhwhenhthingshchange.
Exhibith1.3hlistshthehSixhStephFinancialhPlanninghProcess.hThehfirsthandhmosthimportanthishdefining
h yourhfinancialhgoals.hExhibith1.6hlistshgoalshbyhagehtohdemonstratehhowhgoalshchangehoverhtime.hU
sehthehexampleshinhExhibith1.5htohaskhstudentshifhthehassumptionsharehrealistic.hYes,hthehanswerhishin
hthehexhibit,hbuthmanyhwillhnothhavehreadhchapterhaththishpoint.hForhyourhuse,hthehassumptionshare:
Assumptionh1:hSavinghahfewhthousandhdollarshahyearhshouldhprovidehenoughhtohfundhmyhchild‘shc
ollegehEducation.
Assumptionh2:hAnhemergencyhfundhlastingh3h monthshshouldhbehadequate.
Assumptionh3:hIhwillhbehablehtohretirehath65handhshouldhhavehplentyhtohlivehonhinhretirement.hA
ssumptionh4:hI‘mhrelyinghonhthehrulehofhthumbhthathIhwillhneedhonlyh70hpercenthofhmyhpre-
hretirementhincomehtohmanagehnicelyhinhretirement.
Thereharehseveralhworksheetshinhthehbook.hWorksheeth1.1hgiveshthehstudenthahformathtohwritehdown
htheirhPersonalhFinancialhGoals.hTherehishpowerhinhwritinghdownhgoalsh[andhmosthanyhotherhplan].hR
ecordinghthehgoalhandhthenhreviewinghthreehmonthshlaterhwillhhelphyouhtohkeephfocushonhthehgoal.
LG3hExplainhthehlifehcyclehofhfinancialhplans,htheirhrolehinhachievinghyourhfinancialhgoals,hh
owhtohdealhwithhspecialhplanninghconcerns,handhthehusehofhprofessionalhfinancialhplanners.
Exhibith1.7hcanhhelphfocushthehattentionhonhhowhgoalshdifferhbetweenhthehvarioushstageshofhlife.hSe
ctionh1-3bhlistshvarioushdecisionshthathyouhwillhhavehtohmakehoverhyourhlife.hThehsectionh1-
3chaddresseshSpecialhPlanninghConcerns.hWorksheeth1.2hfocuseshonhthehfinancialhbenefithtohthehfa
milyhofhthehsecondhincome.hIfhthehsecondhincomehishfromhahminimumhwagehjob,hithmayhnothbehahgoo
dhfinancialhdecision.hOfhcoursehhavinghahjob,hevenhahminimumhwagehjob,hmayhgivehthehpersonhpsyc
hichincomehthathwillhoverridehthehfinancialhimpact.
Whilehperhapshoffhtopic,hIhrecallhahhighhschoolhsciencehteacherhwhohwashahsmoker.hHehwalkedhthro
ughhthehamounthofhmoneyhhehspenthonhpurchasinghtobaccoh products.h Thathcomputationhhadha
, lothtohdohwithhmyhdecisionhtohnothsmoke.hHowhthishrelateshtohthehcoursehishthaththishishanhillustrationh
ofhhowhthehfinancialhimpacthofhahdecisionhcanhdrivehthehdecision.
LG4hExaminehtheheconomichenvironment’shinfluencehonhpersonalhfinancialhplanning.
Forholderhfolks,hthehfinancialhcrisishofh2008-
2009hishfreshhinhourhmemory.hTohthehstudenthofh2021,hthathcrisishishmorehofhhistoryhthanhlife.hIfhyouhc
anhsharehahwarhstoryhonhhowhyouhwerehpersonallyhimpacted,hithwillhhelphbringhthehimpacthofhthehworl
dheconomyhonhfinancialhplanshtohlife.hThehbookhspeakshhowhtohmanagehthishtypehofhcrisis,hbuthyouhha
dhtohgohthroughhithtohreallyhunderstandhthehimpacthithhad.
Thehvaluehofhprofessionalhadvicehishgreatlyhunderstated.hIfhbyhtalkinghtohahprofessionalhyouhcanhprev
enthmakinghahmistakeh--hthathcanhbehofhahgreathvalue.hSectionh1-
3ehspeakshtohthehusehofhprofessionalhfinancialhplanners.h Exhibith1.9hlistshouththehvarioushcertification
shthathplannershhave.
Economichorhbusinesshcyclesharehreal.hPerhapshthehmosthusefulhthinghabouththehcycleshishthehknowle
dgehthathifhthingsharehbad,hyouhknowhtheyhwillhgethbetter.h Ofhcourse,hwhenhlifehishgood,hyouhknowht
haththehbadhcyclehwillhcomeharoundhagain.h Thus,hfinancialhplanninghrequireshsavinghinhthehgoodhtim
eshforhthehbadhtimes.h Seehtheh―TesthYourself‖hquestionh1-
17hforhahshorthdiscussionhofhbusinesshcycles.
Thehpowerhofhcompoundinghishrarelyhunderstood.hExhibith1.8hshowshhowhthehamounth$10,000hwillh
growhoverhtime.hThehlongerhthehinvestmenthstayshinvested,hthehgreaterhthehamounth–
hthehpowerhofhcompoundhinterest.
LG5hEvaluatehthehimpacthofhage,heducation,handhgeographichlocationhonhpersonalhincome.
Exhibith1.12hsayshithall.
LG6hUnderstandhthehimportancehofhcareerhchoiceshandhtheirhrelationshiphtohpersonalhfinancia
lhplanning.
Exhibith1.13hshowshthaththehchoicehofhahcollegehmajorhhashahfinancialhimpact.hOfhcoursehmoneyhcann
othbuyhhappiness,hbuthhavinghahbithhelps.hIfhyouhreallyhwanthtohbehanhelementaryhschoolhteacher,hyouh
musthrecognizehthathyouhwillhnothhavehashmuchhwealthhashahlawyerhorhfinancialhanalyst.
Thehsummaryhofhthehlearninghgoalshaththehendhofhthehchapterhshouldhaidhthehstudenthinhreviewinght
hehchapterhwhenhexamhtimehcomes.hIthwillhbehusefulhtohpointhouthtohthehstudenthhowhtohusehthishma
terial.
LinkhtohSolutionshtohFinancialhPlanninghExercises
Pre-tests
