Solution Manual For Personal Financial Planning
15th Edition By Randy Billingsley, Lawrence J.
Gitman, Michael D. Joehnk
,SOLUTION MANUAL FOR
Personal Financial Planning 15th Edition By Randy Billingsley,
Lawrence J. Gitman, Michael D. Joehnk
Understanding The
Financial Planning Process
Chapter 1
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 BeIn 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 GovernmentDecides 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
FinancialPlanners 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 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 ClassCan 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 TheFinancial 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 ToHelp 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‘SCollege 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 OtherPlan]. Recording The Goal And Then Reviewing Three Months Later Will Help You To
Keep Focus OnThe 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 AGood Financial Decision. Of Course Having A Job, Even A Minimum Wage
Job, May Give The PersonPsychic 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
,Lot To Do With My Decision To Not Smoke. How This Relates To The Course Is That This Is An
Illustration Of How The Financial Impact Of A Decision Can Drive The Decision.
LG4 Examine The Economic Environment’s Influence On Personal Financial Planning.
For Older Folks, The Financial Crisis Of 2008-2009 Is Fresh In Our Memory. To The Student Of
2021,That Crisis Is More Of History Than Life. If You Can Share A War Story On How You Were
Personally Impacted, It Will Help Bring The Impact Of The World Economy On Financial Plans
To Life. The BookSpeaks How To Manage This Type Of Crisis, But You Had To Go Through It To
Really Understand The Impact It Had.
The Value Of Professional Advice Is Greatly Understated. If By Talking To A Professional You Can
Prevent Making A Mistake -- That Can Be Of A Great Value. Section 1-3e Speaks To The Use Of
Professional Financial Planners. Exhibit 1.9 Lists Out The Various Certifications That Planners
Have.
Economic Or Business Cycles Are Real. Perhaps The Most Useful Thing About The Cycles Is The
Knowledge That If Things Are Bad, You Know They Will Get Better. Of Course, When Life Is
Good, You Know That The Bad Cycle Will Come Around Again. Thus, Financial Planning Requires
Saving InThe Good Times For The Bad Times. See The ―Test Yourself‖ Question 1-17 For A
Short Discussion Of Business Cycles.
The Power Of Compounding Is Rarely Understood. Exhibit 1.8 Shows How The Amount
$10,000Will Grow Over Time. The Longer The Investment Stays Invested, The Greater The
Amount – The Power Of Compound Interest.
LG5 Evaluate The Impact Of Age, Education, And Geographic Location On Personal Income.
Exhibit 1.12 Says It All.
LG6 Understand The Importance Of Career Choices And Their Relationship To Personal
Financial Planning.
Exhibit 1.13 Shows That The Choice Of A College Major Has A Financial Impact. Of Course Money
Cannot Buy Happiness, But Having A Bit Helps. If You Really Want To Be An Elementary School
Teacher, You Must Recognize That You Will Not Have As Much Wealth As A Lawyer Or Financial
Analyst.
The Summary Of The Learning Goals At The End Of The Chapter Should Aid The Student In
Reviewing The Chapter When Exam Time Comes. It Will Be Useful To Point Out To The
Student How To Use This Material.
Link To Solutions To Financial Planning Exercises
Pre-Tests
,I Have Mentioned Pre-Test In Other Places. Simply Stated, They Work. Students Who
Experience A Pre-Test, That Is A Quiz Before You Have Covered The Material, Perform Better
On The Exam Over TheMaterial And They Will Learn More From The Course. At Least They Will
Have A Higher Grade. For A Discussion Of Pre-Testing, See Craig Shoulders And Sam Hicks,
―ADEPT Learning System‖, Issues In Accounting Education, May 2008 Volume 23, Number 2,
Pp 161-182.
Financial Facts Or Fantasies?
These May Be Used As ―Teasers‖ To Get The Students On The Right Page With You. Also, They
May Be Used As Quizzes After You Covered The Material Or As ―Pre-Test Questions‖ To Get
Their Attention.
An Improved Standard Of Living Is One Of The Payoffs Of Sound Personal Financial
Fact: The Heart Of Sound Financial Planning And Effective Money Management Is The Greater
Enjoyment Of The Money One Makes By Improving One‘S Standard Of Living.
A Savings Account Is An Example Of A Tangible Asset Because It Represents Something On
Deposit AtA Bank Or Other Financial Institution.
Fantasy: A Savings Account, Like Stocks, Bonds, And Mutual Funds, Is An Example Of A
FinancialAsset – An Intangible, A ―Paper‖ Asset. Real Assets, In Contrast, Refer To Tangibles –
Physical Items Like Houses, Cars, And Appliances.
Personal Financial Planning Involves Translating Personal Financial Goals Into Specific Plans
AndArrangements That Put These Plans Into Action.
Fact: Personal Financial Plans Are Based On The Specific Financial Goals That You Set For
Yourself And Your Family. Once In Place, The Plans Are Put Into Action Using The Various
Financial StrategiesExplained In This Book.
Over The Long Run, Gaining Only An Extra Percent Or Two On An Investment Makes Little
DifferenceIn The Amount Of Earnings Generated.
Fantasy: Gaining An Extra Percent Or Two On An Investment‘S Return Can Make A Tremendous
Difference – Often Thousands Of Dollars – That Increases The Longer The Investment Is Held.
Inflation Generally Has Little Effect On Personal Financial Planning.
Fantasy: Inflation Is A Vital Concern In Financial Planning. This Is Because Inflation Affects Not
Only The Prices We Pay For The Goods And Services We Consume But Also The Amount Of
Money WeMake. If Ignored, Inflation Can Wreak Havoc On Our Budgets And Financial Plans.
Your Income Level Depends On Your Age, Education, And Career Choice.
Fact: All Three Of These Variables Are Important Determinants Of Your Income Level,
ParticularlyWhen Accompanied By Adequate Ambition And Disciplined Work Habits.
Financial Facts Or Fantasies?
These May Be Used As A Quiz Or As A Pre-Test To Get The Students Interested.
,1. True False An Improved Standard Of Living Is One Of The Payoffs Of Sound
PersonalFinancial Planning.
2. True False A Savings Account Is An Example Of A Tangible Asset Because It
RepresentsSomething On Deposit At A Bank Or Other Financial
Institution.
3. True False Personal Financial Planning Involves Translating Personal Financial
GoalsInto Specific Plans And Arrangements That Put These Plans Into
Action.
4. True False Over The Long Run, Gaining Only An Extra Percent Or Two On An
InvestmentMakes Little Difference In The Amount Of Earnings Generated
5. True False Inflation Generally Has Little Effect On Personal Financial Planning.
6. True False Your Income Level Depends On Your Age, Education, And Career Choice
Answers:
1. True 2. False 3. True 4. False 5. False 6. True
YOU CAN DO IT NOW
The ―You Can Do It Now‖ Cases Are Primary For The Student. They May Be Used In Class To
Start A Discussion Of The Topic. They Will Help Make The Topic More Real Or Relevant To The
Students. In Most Cases, It Will Only Take About Five Minutes Of Class Time.
Start A List Of Your Financial Goals
Yogi Berra Summed It Up: ―If You Don't Know Where You're Going, You Might Not Get There.‖
And So, It Is With Your Financial Goals. Pick Up Some Paper Now And Start A List Of Your Financial
Goals.Maybe It‘S As Simple As Saving $25 By The End Of The Month Or As Lofty As Saving
$200,000 For Retirement By The Time You‘Re 50. You‘Ll Never Achieve Your Goals If You Don‘T
Know What They Are, Much Less Know Whether They‘Re Realistic. Go Ahead And Dream. List
Your Goals (Short-Term,Intermediate, And Long-Term) And Start Laying Out How You‘Ll Get
There. You Can Do It Now.
Start Building An Emergency Fund
What Would Happen If You Lost Your Job, Got Hurt, Or Had An Unexpected Big Expense? Even
If You‘Re Not Making Much Money Now, You Could Start Building An Emergency Fund By
Putting Aside Even $10 A Month. As This Chapter Points Out, Your Goal Is To Eventually Set
Aside Enough ToLast At Least 6-Month. Considering The Risk Of Not Doing So, You Can Do It
Now.
Recognize That YOU Are Your Most Important Asset
Your Greatest Asset Is YOU. So, It‘S Important To Build The Value Of Your Best Asset By
Investing In Your Education And Career. The Amount You Can Consume, Save, And Invest Is
,Directly Related To
,Your Earning Ability. Consider That Over An Entire Career, The Average Bachelor‘S Degree
Holder Will Earn $2.1 Million, Which Is About Twice What The Typical High School Grad Earns.
(For Additional Motivating Information, See The Source Of These Statistics: The Hamilton
Project At The Brookings Institution, Http://Hamiltonproject.Org/Earnings_By_Major/). It‘S So
Important To RealizeYou‘Re Your Greatest Asset And Act On It – You Can Do It Now.
Financial Impact Of Personal Choices
Read And Think About The Choices Being Made. Do You Agree Or Not? Ask The Students To
DiscussThe Choices Being Made.
Andrew Cuts Back On Lunch Out And Lattes
Andrew Buys Lunch Out Most Days And Buys A Latte Every Morning. He Believes He Could Cut
BackA Bit And Save $5 A Day, Which Is $35 A Week And $140 A Month. So, What's The Impact
Of This Seemingly Modest Cut-Back?
If Andrew Invests His $35 Savings A Week Every Month At 5 Percent, He Will Have The Following
InThe Future:
20 Years: $57,545
30 Years: $116,516
40 Years: $213,643
So, The Seemingly Small Act Of Investing Only $5 A Day Would Have A Dramatic Long-Term
Effect OnAndrew's Future Accumulated Wealth.
Applying Personal Finance
While Similar To The ―You Can Do It Now‖ Activities, The Applying Personal Finance Projects Are
Longer And More Involved Activities The Student Can Do To Better Understand Personal
Finance.
Generally, The Project Asked The Student To Disclose Their Personal Information And Data. As
A Homework Assignment, The Student Will Benefit From Doing The Assignment, But There Are
No RightOr Wrong Answers. Also, There Will Be A Tendency To Make Up Answers That Sound
Good To The Student.
If You Choose To Assign These Projects, Grading Will Be Either Check The Student Did Something
OrNot. Or, You Could Give An A, C, F For A Good Attempt, An Attempt, Or No Attempt.
Taken Seriously, The Student Will Benefit From The Project. As A Graded Project, It Will Be
DifficultTo Grade.
The Chapter 1 Project Takes The Student To The Exhibit 1.4 And Asks The Student To Examine
TheirFinancial Behavior. Weaknesses May Be Identified, And The Student Could Change Their
BehaviorTo Be One That Is More Conducive To Building A Solid Financial Plan.
,Watch Your Attitude!
Many People‘S Attitude Toward Money Has As Much Or More To Do With Their Ability To
AccumulateWealth As It Does With The Amount Of Money They Earn. As Observed In Exhibit
1.4, Your Attitude Toward Money Influences The Entire Financial Planning Process And Often
Determines Whether Financial Goals Become Reality Or End Up Being Pipe Dreams. This
Project Will Help You Examine Your Attitude Toward Money And Wealth So That You Can
Formulate Realistic Goals And Plans.
Use The Following Questions To Stimulate Your Thought Process.
a. Am I A Saver, Or Do I Spend Almost All The Money I Receive?
b. Does It Make Me Feel Good Just To Spend Money, Regardless Of What It‘S For?
c. Is It Important For Me To Have New Clothes Or A New Car Just For The Sake Of Having Them?
d. Do I Have Clothes Hanging In My Closet With The Price Tags Still On Them?
e. Do I Buy Things Because They Are A Bargain Or Because I Need Them?
f. Do I Save For My Vacations, Or Do I Charge Everything And Take Months Paying Off My
CreditCard At High Interest?
g. If I Have A Balance On My Credit Card, Can I Recall What The Charges Were For Without
LookingAt My Statement?
h. Where Do I Want To Be Professionally And Financially In 5 Years? In 10 Years?
i. Will My Attitude Toward Money Help Get Me There? If Not, What Do I Need To Do?
j. If I Dropped Out Of School Today Or Lost My Job, What Would I Do?
Does Your Attitude Toward Money Help Or Hinder You? How Can You Adjust Your Attitude So
ThatYou Are More Likely To Accomplish Your Financial Goals?
, Solutions To Financial Planning Exercises
1. Benefits Of Personal Financial Planning. How Can Using Personal Financial Planning
Tools Help You Improve Your Financial Situation? Describe Changes You Can Make In
At Least Three Areas.
Student Answers Will Vary. In General, Personal Financial Planning Tools Help
Individuals To Organize Their Finances, Evaluate Their Current Financial Condition, And
Track Changes InTheir Financial Condition Throughout Their Life To See If They Are
Making Progress Toward Their Financial Goals. Use Of Budgets And Financial
Statements Will Provide The Information You Need To Maintain A Financial Plan.
2. Personal Financial Goals And The Life Cycle. Use Worksheet 1.1. Describe Your
Current Status Based On The Personal Financial Planning Life Cycle Shown In Exhibit
1.7. Fill Out Worksheet 1.1, ―Summary Of Personal Financial Goals,‖ With Goals
Reflecting Your Current Situation And Your Expected Life Situation In 5 And 10 Years.
Discuss The Reasons For The Changes In Your Goals And How You’ll Need To Adapt
YourFinancial Plans As A Result. Which Types Of Financial Plans Do You Need For Your
Current Situation, And Why?
Student Answers Will Vary Depending On Their Personal Situation. The Purpose Of This
Exercise Is To Encourage Students To Focus On How Their Personal Goals And Plans Will
Change Over Their Financial Planning Life Cycle And To Help Them Be Specific In Setting
TheirGoals By Designating Dollar Amounts And Dates. Worksheet 1.1 In The Chapter
Lists Examples Of Financial Goals.
3. Personal Financial Goals. Recommend Three Financial Goals And Related Activities
For Someone In Each Of The Following Circumstances:
a. A Junior In College
b. A 30-Year-Old Computer Programmer Who Plans To Earn An MBA Degree
c. A Couple In Their 30s With Two Children, Ages 3 And 6
d. A Divorced 52-Year-Old Man With A 16-Year-Old Child And A 78-Year-Old
FatherWho Is Ill
Student Answers Will Vary. Suggestions May Include The Following:
a. Junior In College—Pay Off All Credit Card Debt By Graduation; Pay Off All Student
LoansWithin 10 Years Of Graduation; Save $2,000 For A Down Payment On Another
Vehicle During The Next 3 Years.
b. 30-Year Old Computer Programmer Who Plans To Earn An MBA—Pay Off Auto
Loan Before Beginning Degree; Find A Cheaper Place To Live; Set Aside $5,000 For
EmergencyUse During School.
15th Edition By Randy Billingsley, Lawrence J.
Gitman, Michael D. Joehnk
,SOLUTION MANUAL FOR
Personal Financial Planning 15th Edition By Randy Billingsley,
Lawrence J. Gitman, Michael D. Joehnk
Understanding The
Financial Planning Process
Chapter 1
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 BeIn 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 GovernmentDecides 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
FinancialPlanners 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 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 ClassCan 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 TheFinancial 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 ToHelp 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‘SCollege 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 OtherPlan]. Recording The Goal And Then Reviewing Three Months Later Will Help You To
Keep Focus OnThe 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 AGood Financial Decision. Of Course Having A Job, Even A Minimum Wage
Job, May Give The PersonPsychic 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
,Lot To Do With My Decision To Not Smoke. How This Relates To The Course Is That This Is An
Illustration Of How The Financial Impact Of A Decision Can Drive The Decision.
LG4 Examine The Economic Environment’s Influence On Personal Financial Planning.
For Older Folks, The Financial Crisis Of 2008-2009 Is Fresh In Our Memory. To The Student Of
2021,That Crisis Is More Of History Than Life. If You Can Share A War Story On How You Were
Personally Impacted, It Will Help Bring The Impact Of The World Economy On Financial Plans
To Life. The BookSpeaks How To Manage This Type Of Crisis, But You Had To Go Through It To
Really Understand The Impact It Had.
The Value Of Professional Advice Is Greatly Understated. If By Talking To A Professional You Can
Prevent Making A Mistake -- That Can Be Of A Great Value. Section 1-3e Speaks To The Use Of
Professional Financial Planners. Exhibit 1.9 Lists Out The Various Certifications That Planners
Have.
Economic Or Business Cycles Are Real. Perhaps The Most Useful Thing About The Cycles Is The
Knowledge That If Things Are Bad, You Know They Will Get Better. Of Course, When Life Is
Good, You Know That The Bad Cycle Will Come Around Again. Thus, Financial Planning Requires
Saving InThe Good Times For The Bad Times. See The ―Test Yourself‖ Question 1-17 For A
Short Discussion Of Business Cycles.
The Power Of Compounding Is Rarely Understood. Exhibit 1.8 Shows How The Amount
$10,000Will Grow Over Time. The Longer The Investment Stays Invested, The Greater The
Amount – The Power Of Compound Interest.
LG5 Evaluate The Impact Of Age, Education, And Geographic Location On Personal Income.
Exhibit 1.12 Says It All.
LG6 Understand The Importance Of Career Choices And Their Relationship To Personal
Financial Planning.
Exhibit 1.13 Shows That The Choice Of A College Major Has A Financial Impact. Of Course Money
Cannot Buy Happiness, But Having A Bit Helps. If You Really Want To Be An Elementary School
Teacher, You Must Recognize That You Will Not Have As Much Wealth As A Lawyer Or Financial
Analyst.
The Summary Of The Learning Goals At The End Of The Chapter Should Aid The Student In
Reviewing The Chapter When Exam Time Comes. It Will Be Useful To Point Out To The
Student How To Use This Material.
Link To Solutions To Financial Planning Exercises
Pre-Tests
,I Have Mentioned Pre-Test In Other Places. Simply Stated, They Work. Students Who
Experience A Pre-Test, That Is A Quiz Before You Have Covered The Material, Perform Better
On The Exam Over TheMaterial And They Will Learn More From The Course. At Least They Will
Have A Higher Grade. For A Discussion Of Pre-Testing, See Craig Shoulders And Sam Hicks,
―ADEPT Learning System‖, Issues In Accounting Education, May 2008 Volume 23, Number 2,
Pp 161-182.
Financial Facts Or Fantasies?
These May Be Used As ―Teasers‖ To Get The Students On The Right Page With You. Also, They
May Be Used As Quizzes After You Covered The Material Or As ―Pre-Test Questions‖ To Get
Their Attention.
An Improved Standard Of Living Is One Of The Payoffs Of Sound Personal Financial
Fact: The Heart Of Sound Financial Planning And Effective Money Management Is The Greater
Enjoyment Of The Money One Makes By Improving One‘S Standard Of Living.
A Savings Account Is An Example Of A Tangible Asset Because It Represents Something On
Deposit AtA Bank Or Other Financial Institution.
Fantasy: A Savings Account, Like Stocks, Bonds, And Mutual Funds, Is An Example Of A
FinancialAsset – An Intangible, A ―Paper‖ Asset. Real Assets, In Contrast, Refer To Tangibles –
Physical Items Like Houses, Cars, And Appliances.
Personal Financial Planning Involves Translating Personal Financial Goals Into Specific Plans
AndArrangements That Put These Plans Into Action.
Fact: Personal Financial Plans Are Based On The Specific Financial Goals That You Set For
Yourself And Your Family. Once In Place, The Plans Are Put Into Action Using The Various
Financial StrategiesExplained In This Book.
Over The Long Run, Gaining Only An Extra Percent Or Two On An Investment Makes Little
DifferenceIn The Amount Of Earnings Generated.
Fantasy: Gaining An Extra Percent Or Two On An Investment‘S Return Can Make A Tremendous
Difference – Often Thousands Of Dollars – That Increases The Longer The Investment Is Held.
Inflation Generally Has Little Effect On Personal Financial Planning.
Fantasy: Inflation Is A Vital Concern In Financial Planning. This Is Because Inflation Affects Not
Only The Prices We Pay For The Goods And Services We Consume But Also The Amount Of
Money WeMake. If Ignored, Inflation Can Wreak Havoc On Our Budgets And Financial Plans.
Your Income Level Depends On Your Age, Education, And Career Choice.
Fact: All Three Of These Variables Are Important Determinants Of Your Income Level,
ParticularlyWhen Accompanied By Adequate Ambition And Disciplined Work Habits.
Financial Facts Or Fantasies?
These May Be Used As A Quiz Or As A Pre-Test To Get The Students Interested.
,1. True False An Improved Standard Of Living Is One Of The Payoffs Of Sound
PersonalFinancial Planning.
2. True False A Savings Account Is An Example Of A Tangible Asset Because It
RepresentsSomething On Deposit At A Bank Or Other Financial
Institution.
3. True False Personal Financial Planning Involves Translating Personal Financial
GoalsInto Specific Plans And Arrangements That Put These Plans Into
Action.
4. True False Over The Long Run, Gaining Only An Extra Percent Or Two On An
InvestmentMakes Little Difference In The Amount Of Earnings Generated
5. True False Inflation Generally Has Little Effect On Personal Financial Planning.
6. True False Your Income Level Depends On Your Age, Education, And Career Choice
Answers:
1. True 2. False 3. True 4. False 5. False 6. True
YOU CAN DO IT NOW
The ―You Can Do It Now‖ Cases Are Primary For The Student. They May Be Used In Class To
Start A Discussion Of The Topic. They Will Help Make The Topic More Real Or Relevant To The
Students. In Most Cases, It Will Only Take About Five Minutes Of Class Time.
Start A List Of Your Financial Goals
Yogi Berra Summed It Up: ―If You Don't Know Where You're Going, You Might Not Get There.‖
And So, It Is With Your Financial Goals. Pick Up Some Paper Now And Start A List Of Your Financial
Goals.Maybe It‘S As Simple As Saving $25 By The End Of The Month Or As Lofty As Saving
$200,000 For Retirement By The Time You‘Re 50. You‘Ll Never Achieve Your Goals If You Don‘T
Know What They Are, Much Less Know Whether They‘Re Realistic. Go Ahead And Dream. List
Your Goals (Short-Term,Intermediate, And Long-Term) And Start Laying Out How You‘Ll Get
There. You Can Do It Now.
Start Building An Emergency Fund
What Would Happen If You Lost Your Job, Got Hurt, Or Had An Unexpected Big Expense? Even
If You‘Re Not Making Much Money Now, You Could Start Building An Emergency Fund By
Putting Aside Even $10 A Month. As This Chapter Points Out, Your Goal Is To Eventually Set
Aside Enough ToLast At Least 6-Month. Considering The Risk Of Not Doing So, You Can Do It
Now.
Recognize That YOU Are Your Most Important Asset
Your Greatest Asset Is YOU. So, It‘S Important To Build The Value Of Your Best Asset By
Investing In Your Education And Career. The Amount You Can Consume, Save, And Invest Is
,Directly Related To
,Your Earning Ability. Consider That Over An Entire Career, The Average Bachelor‘S Degree
Holder Will Earn $2.1 Million, Which Is About Twice What The Typical High School Grad Earns.
(For Additional Motivating Information, See The Source Of These Statistics: The Hamilton
Project At The Brookings Institution, Http://Hamiltonproject.Org/Earnings_By_Major/). It‘S So
Important To RealizeYou‘Re Your Greatest Asset And Act On It – You Can Do It Now.
Financial Impact Of Personal Choices
Read And Think About The Choices Being Made. Do You Agree Or Not? Ask The Students To
DiscussThe Choices Being Made.
Andrew Cuts Back On Lunch Out And Lattes
Andrew Buys Lunch Out Most Days And Buys A Latte Every Morning. He Believes He Could Cut
BackA Bit And Save $5 A Day, Which Is $35 A Week And $140 A Month. So, What's The Impact
Of This Seemingly Modest Cut-Back?
If Andrew Invests His $35 Savings A Week Every Month At 5 Percent, He Will Have The Following
InThe Future:
20 Years: $57,545
30 Years: $116,516
40 Years: $213,643
So, The Seemingly Small Act Of Investing Only $5 A Day Would Have A Dramatic Long-Term
Effect OnAndrew's Future Accumulated Wealth.
Applying Personal Finance
While Similar To The ―You Can Do It Now‖ Activities, The Applying Personal Finance Projects Are
Longer And More Involved Activities The Student Can Do To Better Understand Personal
Finance.
Generally, The Project Asked The Student To Disclose Their Personal Information And Data. As
A Homework Assignment, The Student Will Benefit From Doing The Assignment, But There Are
No RightOr Wrong Answers. Also, There Will Be A Tendency To Make Up Answers That Sound
Good To The Student.
If You Choose To Assign These Projects, Grading Will Be Either Check The Student Did Something
OrNot. Or, You Could Give An A, C, F For A Good Attempt, An Attempt, Or No Attempt.
Taken Seriously, The Student Will Benefit From The Project. As A Graded Project, It Will Be
DifficultTo Grade.
The Chapter 1 Project Takes The Student To The Exhibit 1.4 And Asks The Student To Examine
TheirFinancial Behavior. Weaknesses May Be Identified, And The Student Could Change Their
BehaviorTo Be One That Is More Conducive To Building A Solid Financial Plan.
,Watch Your Attitude!
Many People‘S Attitude Toward Money Has As Much Or More To Do With Their Ability To
AccumulateWealth As It Does With The Amount Of Money They Earn. As Observed In Exhibit
1.4, Your Attitude Toward Money Influences The Entire Financial Planning Process And Often
Determines Whether Financial Goals Become Reality Or End Up Being Pipe Dreams. This
Project Will Help You Examine Your Attitude Toward Money And Wealth So That You Can
Formulate Realistic Goals And Plans.
Use The Following Questions To Stimulate Your Thought Process.
a. Am I A Saver, Or Do I Spend Almost All The Money I Receive?
b. Does It Make Me Feel Good Just To Spend Money, Regardless Of What It‘S For?
c. Is It Important For Me To Have New Clothes Or A New Car Just For The Sake Of Having Them?
d. Do I Have Clothes Hanging In My Closet With The Price Tags Still On Them?
e. Do I Buy Things Because They Are A Bargain Or Because I Need Them?
f. Do I Save For My Vacations, Or Do I Charge Everything And Take Months Paying Off My
CreditCard At High Interest?
g. If I Have A Balance On My Credit Card, Can I Recall What The Charges Were For Without
LookingAt My Statement?
h. Where Do I Want To Be Professionally And Financially In 5 Years? In 10 Years?
i. Will My Attitude Toward Money Help Get Me There? If Not, What Do I Need To Do?
j. If I Dropped Out Of School Today Or Lost My Job, What Would I Do?
Does Your Attitude Toward Money Help Or Hinder You? How Can You Adjust Your Attitude So
ThatYou Are More Likely To Accomplish Your Financial Goals?
, Solutions To Financial Planning Exercises
1. Benefits Of Personal Financial Planning. How Can Using Personal Financial Planning
Tools Help You Improve Your Financial Situation? Describe Changes You Can Make In
At Least Three Areas.
Student Answers Will Vary. In General, Personal Financial Planning Tools Help
Individuals To Organize Their Finances, Evaluate Their Current Financial Condition, And
Track Changes InTheir Financial Condition Throughout Their Life To See If They Are
Making Progress Toward Their Financial Goals. Use Of Budgets And Financial
Statements Will Provide The Information You Need To Maintain A Financial Plan.
2. Personal Financial Goals And The Life Cycle. Use Worksheet 1.1. Describe Your
Current Status Based On The Personal Financial Planning Life Cycle Shown In Exhibit
1.7. Fill Out Worksheet 1.1, ―Summary Of Personal Financial Goals,‖ With Goals
Reflecting Your Current Situation And Your Expected Life Situation In 5 And 10 Years.
Discuss The Reasons For The Changes In Your Goals And How You’ll Need To Adapt
YourFinancial Plans As A Result. Which Types Of Financial Plans Do You Need For Your
Current Situation, And Why?
Student Answers Will Vary Depending On Their Personal Situation. The Purpose Of This
Exercise Is To Encourage Students To Focus On How Their Personal Goals And Plans Will
Change Over Their Financial Planning Life Cycle And To Help Them Be Specific In Setting
TheirGoals By Designating Dollar Amounts And Dates. Worksheet 1.1 In The Chapter
Lists Examples Of Financial Goals.
3. Personal Financial Goals. Recommend Three Financial Goals And Related Activities
For Someone In Each Of The Following Circumstances:
a. A Junior In College
b. A 30-Year-Old Computer Programmer Who Plans To Earn An MBA Degree
c. A Couple In Their 30s With Two Children, Ages 3 And 6
d. A Divorced 52-Year-Old Man With A 16-Year-Old Child And A 78-Year-Old
FatherWho Is Ill
Student Answers Will Vary. Suggestions May Include The Following:
a. Junior In College—Pay Off All Credit Card Debt By Graduation; Pay Off All Student
LoansWithin 10 Years Of Graduation; Save $2,000 For A Down Payment On Another
Vehicle During The Next 3 Years.
b. 30-Year Old Computer Programmer Who Plans To Earn An MBA—Pay Off Auto
Loan Before Beginning Degree; Find A Cheaper Place To Live; Set Aside $5,000 For
EmergencyUse During School.
