Solution Manual for Personal Financial Planning
b b b b b b
b 15th Edition by Randy Billingsley, Lawrence J.
b b b b b b b
b Gitman, Michael D. Joehnk
b b b
,SOLUTION MANUAL FOR b b
Personal Financial Planning 15th Edition by Randy b b b b b b
Billingsley, Lawrence J. Gitman, Michael D. Joehnk
b b b b b b b
Understanding the b b
FinancialPlanningProcess
b b b
Chapter 1
b b
How Will This Affect Me?b b b b
The heart of financial planning is making sure your values line up with how you spend and save.
b b b b b b b b b b b b b b b b b
That means knowing where you are financially and planning on how to get where you want to be in
b b b b b b b b b b b b b b b b b b b
the future no matter what life throws at you. For example, how should your plan handle the
b b b b b b b b b b b b b b b b b
projection that Social Security costs may exceed revenues by 2035? And what if the government
b b b b b b b b b b b b b b b
decides to raise tax rates to help cover the federal deficit? An informed financial plan should
b b b b b b b b b b b b b b b b
reflect such uncertainties and more.
b b b b b
This chapter overviews the financial planning process and explains its context. Topics include how
b b b b b b b b b b b b b
financial plans change to accommodate your current stage in life and the role that financial planners
b b b b b b b b b b b b b b b b
can play in helping you achieve your objectives. After reading this chapter you will have a good
b b b b b b b b b b b b b b b b b
perspective on how to organize your overall personal financial plan.
b b b b b b b b b b
LEARNING GOALS b
LG1 Identify the benefits of using personal financial planning techniques to manage your
b b b b b b b b b b b b
finances.
b
Key concept in this section is the planning model as displayed in Exhibit 1.1. Your standard of
b b b b b b b b b b b b b b b b
living is greatly impacted by your spending habits and your commitment to saving. Your spending
b b b b b b b b b b b b b b b
is measured by your propensity to consume. Wealth is the total value of all property you own less
b b b b b b b b b b b b b b b b b b
the amount that you owe to others.
b b b b b b b
ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will you do
b b b b b b b b b b b b b b b
with the money? Write down three ways you will spend or use the money.
b b b b b b b b b b b b b b
,Ask the students to share one item with the class and record what they say so that the entire class can
b b b b b b b b b b b b b b b b b b b b
reflect on the answers. Hopefully, at least a few will mention investing even if only $10,000 of the
b b b b b b b b b b b b b b b b b b
amount. Use their answers to discuss taking care of current needs versus future needs.
b b b b b b b b b b b b b b
Focus on their propensity to consume and its impact on accumulating wealth. Point out the
b b b b b b b b b b b b b b
Financial Planning Tip, ―Be SMART in Planning Your Financial Goals.‖
b b b b b b b b b b
Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit 1.6 to
b b b b b b b b b b b b b b b b b
help the student identify where they are now.
b b b b b b b b
LG2 Describe the personal financial planning process and define your goals.
b b b b b b b b b b
Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless; Planning is
b b b b b b b b b b b b b b
priceless‖. The process of planning allows you to focus on the issues that are most important and to
b b b b b b b b b b b b b b b b b b
be ready when things change.
b b b b b
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is defining
b b b b b b b b b b b b b b b
your financial goals. Exhibit 1.6 lists goals by age to demonstrate how goals change over time.
b b b b b b b b b b b b b b b b
Use the examples in Exhibit 1.5 to ask students if the assumptions are realistic. Yes, the answer is
b b b b b b b b b b b b b b b b b b
in the exhibit, but many will not have read chapter at this point. For your use, the assumptions are:
b b b b b b b b b b b b b b b b b b b
Assumption 1: Saving a few thousand dollars a year should provide enough to fund my child‘s
b b b b b b b b b b b b b b b
college Education.
b b
Assumption 2: An emergency fund lasting 3 months should be adequate. b b b b b b b b b b
Assumption 3: I will be able to retire at 65 and should have plenty to live on in retirement.
b b b b b b b b b b b b b b b b b b
Assumption 4: I‘m relying on the rule of thumb that I will need only 70 percent of my pre-
b b b b b b b b b b b b b b b b b b b
retirement income to manage nicely in retirement.
b b b b b b b
There are several worksheets in the book. Worksheet 1.1 gives the student a format to write down
b b b b b b b b b b b b b b b b
their Personal Financial Goals. There is power in writing down goals [and most any other plan].
b b b b b b b b b b b b b b b b
Recording the goal and then reviewing three months later will help you to keep focus on the goal.
b b b b b b b b b b b b b b b b b b
LG3 Explain the life cycle of financial plans, their role in achieving your financial goals,
b b b b b b b b b b b b b b
how to deal with special planning concerns, and the use of professional financial planners.
b b b b b b b b b b b b b b
Exhibit 1.7 can help focus the attention on how goals differ between the various stages of life.
b b b b b b b b b b b b b b b b
Section 1-3b lists various decisions that you will have to make over your life. The section 1-3c
b b b b b b b b b b b b b b b b b
addresses Special Planning Concerns. Worksheet 1.2 focuses on the financial benefit to the family
b b b b b b b b b b b b b b
of the second income. If the second income is from a minimum wage job, it may not be a good
b b b b b b b b b b b b b b b b b b b b
financial decision. Of course having a job, even a minimum wage job, may give the person psychic
b b b b b b b b b b b b b b b b b
income that will override the financial impact.
b b b b b b b
While perhaps off topic, I recall a high school science teacher who was a smoker. He walked
b b b b b b b b b b b b b b b b
through the amount of money he spent on purchasing tobacco products. That computation had a
b b b b b b b b b b b b b b b
, lot to do with my decision to not smoke. How this relates to the course is that this is an illustration
b b b b b b b b b b b b b b b b b b b b
of how the financial impact of a decision can drive the decision.
b b b b b b b b b b b b
LG4 Examine the economic environment’s influence on personal financial planning.
b b b b b b b b b
For older folks, the financial crisis of 2008-2009 is fresh in our memory. To the student of 2021,
b b b b b b b b b b b b b b b b b
that crisis is more of history than life. If you can share a war story on how you were personally
b b b b b b b b b b b b b b b b b b b b
impacted, it will help bring the impact of the world economy on financial plans to life. The book
b b b b b b b b b b b b b b b b b b
speaks how to manage this type of crisis, but you had to go through it to really understand the
b b b b b b b b b b b b b b b b b b b
impact it had.
b b b
The value of professional advice is greatly understated. If by talking to a professional you can
b b b b b b b b b b b b b b b
prevent making a mistake -- that can be of a great value. Section 1-3e speaks to the use of
b b b b b b b b b b b b b b b b b b b
professional financial planners. Exhibit 1.9 lists out the various certifications that planners have.
b b b b b b b b b b b b b
Economic or business cycles are real. Perhaps the most useful thing about the cycles is the
b b b b b b b b b b b b b b b
knowledge that if things are bad, you know they will get better. Of course, when life is good, you
b b b b b b b b b b b b b b b b b b b
know that the bad cycle will come around again. Thus, financial planning requires saving in the
b b b b b b b b b b b b b b b b
good times for the bad times. See the ―Test Yourself‖ question 1-17 for a short discussion of
b b b b b b b b b b b b b b b b b
business cycles.
b b
The power of compounding is rarely understood. Exhibit 1.8 shows how the amount $10,000 will
b b b b b b b b b b b b b b
grow over time. The longer the investment stays invested, the greater the amount – the power of
b b b b b b b b b b b b b b b b b
compound interest.
b b
LG5 Evaluate the impact of age, education, and geographic location on personal income.
b b b b b b b b b b b b
Exhibit 1.12 says it all. b b b b
LG6 Understand the importance of career choices and their relationship to personal financial
b b b b b b b b b b b b
planning.
b
Exhibit 1.13 shows that the choice of a college major has a financial impact. Of course money
b b b b b b b b b b b b b b b b
cannot buy happiness, but having a bit helps. If you really want to be an elementary school teacher,
b b b b b b b b b b b b b b b b b b
you must recognize that you will not have as much wealth as a lawyer or financial analyst.
b b b b b b b b b b b b b b b b b
The summary of the learning goals at the end of the chapter should aid the student in reviewing the
b b b b b b b b b b b b b b b b b b
chapter when exam time comes. It will be useful to point out to the student how to use this
b b b b b b b b b b b b b b b b b b b
material.
b
Link to Solutions to Financial Planning Exercises
b b b b b b
Pre-tests
b b b b b b
b 15th Edition by Randy Billingsley, Lawrence J.
b b b b b b b
b Gitman, Michael D. Joehnk
b b b
,SOLUTION MANUAL FOR b b
Personal Financial Planning 15th Edition by Randy b b b b b b
Billingsley, Lawrence J. Gitman, Michael D. Joehnk
b b b b b b b
Understanding the b b
FinancialPlanningProcess
b b b
Chapter 1
b b
How Will This Affect Me?b b b b
The heart of financial planning is making sure your values line up with how you spend and save.
b b b b b b b b b b b b b b b b b
That means knowing where you are financially and planning on how to get where you want to be in
b b b b b b b b b b b b b b b b b b b
the future no matter what life throws at you. For example, how should your plan handle the
b b b b b b b b b b b b b b b b b
projection that Social Security costs may exceed revenues by 2035? And what if the government
b b b b b b b b b b b b b b b
decides to raise tax rates to help cover the federal deficit? An informed financial plan should
b b b b b b b b b b b b b b b b
reflect such uncertainties and more.
b b b b b
This chapter overviews the financial planning process and explains its context. Topics include how
b b b b b b b b b b b b b
financial plans change to accommodate your current stage in life and the role that financial planners
b b b b b b b b b b b b b b b b
can play in helping you achieve your objectives. After reading this chapter you will have a good
b b b b b b b b b b b b b b b b b
perspective on how to organize your overall personal financial plan.
b b b b b b b b b b
LEARNING GOALS b
LG1 Identify the benefits of using personal financial planning techniques to manage your
b b b b b b b b b b b b
finances.
b
Key concept in this section is the planning model as displayed in Exhibit 1.1. Your standard of
b b b b b b b b b b b b b b b b
living is greatly impacted by your spending habits and your commitment to saving. Your spending
b b b b b b b b b b b b b b b
is measured by your propensity to consume. Wealth is the total value of all property you own less
b b b b b b b b b b b b b b b b b b
the amount that you owe to others.
b b b b b b b
ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will you do
b b b b b b b b b b b b b b b
with the money? Write down three ways you will spend or use the money.
b b b b b b b b b b b b b b
,Ask the students to share one item with the class and record what they say so that the entire class can
b b b b b b b b b b b b b b b b b b b b
reflect on the answers. Hopefully, at least a few will mention investing even if only $10,000 of the
b b b b b b b b b b b b b b b b b b
amount. Use their answers to discuss taking care of current needs versus future needs.
b b b b b b b b b b b b b b
Focus on their propensity to consume and its impact on accumulating wealth. Point out the
b b b b b b b b b b b b b b
Financial Planning Tip, ―Be SMART in Planning Your Financial Goals.‖
b b b b b b b b b b
Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit 1.6 to
b b b b b b b b b b b b b b b b b
help the student identify where they are now.
b b b b b b b b
LG2 Describe the personal financial planning process and define your goals.
b b b b b b b b b b
Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless; Planning is
b b b b b b b b b b b b b b
priceless‖. The process of planning allows you to focus on the issues that are most important and to
b b b b b b b b b b b b b b b b b b
be ready when things change.
b b b b b
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is defining
b b b b b b b b b b b b b b b
your financial goals. Exhibit 1.6 lists goals by age to demonstrate how goals change over time.
b b b b b b b b b b b b b b b b
Use the examples in Exhibit 1.5 to ask students if the assumptions are realistic. Yes, the answer is
b b b b b b b b b b b b b b b b b b
in the exhibit, but many will not have read chapter at this point. For your use, the assumptions are:
b b b b b b b b b b b b b b b b b b b
Assumption 1: Saving a few thousand dollars a year should provide enough to fund my child‘s
b b b b b b b b b b b b b b b
college Education.
b b
Assumption 2: An emergency fund lasting 3 months should be adequate. b b b b b b b b b b
Assumption 3: I will be able to retire at 65 and should have plenty to live on in retirement.
b b b b b b b b b b b b b b b b b b
Assumption 4: I‘m relying on the rule of thumb that I will need only 70 percent of my pre-
b b b b b b b b b b b b b b b b b b b
retirement income to manage nicely in retirement.
b b b b b b b
There are several worksheets in the book. Worksheet 1.1 gives the student a format to write down
b b b b b b b b b b b b b b b b
their Personal Financial Goals. There is power in writing down goals [and most any other plan].
b b b b b b b b b b b b b b b b
Recording the goal and then reviewing three months later will help you to keep focus on the goal.
b b b b b b b b b b b b b b b b b b
LG3 Explain the life cycle of financial plans, their role in achieving your financial goals,
b b b b b b b b b b b b b b
how to deal with special planning concerns, and the use of professional financial planners.
b b b b b b b b b b b b b b
Exhibit 1.7 can help focus the attention on how goals differ between the various stages of life.
b b b b b b b b b b b b b b b b
Section 1-3b lists various decisions that you will have to make over your life. The section 1-3c
b b b b b b b b b b b b b b b b b
addresses Special Planning Concerns. Worksheet 1.2 focuses on the financial benefit to the family
b b b b b b b b b b b b b b
of the second income. If the second income is from a minimum wage job, it may not be a good
b b b b b b b b b b b b b b b b b b b b
financial decision. Of course having a job, even a minimum wage job, may give the person psychic
b b b b b b b b b b b b b b b b b
income that will override the financial impact.
b b b b b b b
While perhaps off topic, I recall a high school science teacher who was a smoker. He walked
b b b b b b b b b b b b b b b b
through the amount of money he spent on purchasing tobacco products. That computation had a
b b b b b b b b b b b b b b b
, lot to do with my decision to not smoke. How this relates to the course is that this is an illustration
b b b b b b b b b b b b b b b b b b b b
of how the financial impact of a decision can drive the decision.
b b b b b b b b b b b b
LG4 Examine the economic environment’s influence on personal financial planning.
b b b b b b b b b
For older folks, the financial crisis of 2008-2009 is fresh in our memory. To the student of 2021,
b b b b b b b b b b b b b b b b b
that crisis is more of history than life. If you can share a war story on how you were personally
b b b b b b b b b b b b b b b b b b b b
impacted, it will help bring the impact of the world economy on financial plans to life. The book
b b b b b b b b b b b b b b b b b b
speaks how to manage this type of crisis, but you had to go through it to really understand the
b b b b b b b b b b b b b b b b b b b
impact it had.
b b b
The value of professional advice is greatly understated. If by talking to a professional you can
b b b b b b b b b b b b b b b
prevent making a mistake -- that can be of a great value. Section 1-3e speaks to the use of
b b b b b b b b b b b b b b b b b b b
professional financial planners. Exhibit 1.9 lists out the various certifications that planners have.
b b b b b b b b b b b b b
Economic or business cycles are real. Perhaps the most useful thing about the cycles is the
b b b b b b b b b b b b b b b
knowledge that if things are bad, you know they will get better. Of course, when life is good, you
b b b b b b b b b b b b b b b b b b b
know that the bad cycle will come around again. Thus, financial planning requires saving in the
b b b b b b b b b b b b b b b b
good times for the bad times. See the ―Test Yourself‖ question 1-17 for a short discussion of
b b b b b b b b b b b b b b b b b
business cycles.
b b
The power of compounding is rarely understood. Exhibit 1.8 shows how the amount $10,000 will
b b b b b b b b b b b b b b
grow over time. The longer the investment stays invested, the greater the amount – the power of
b b b b b b b b b b b b b b b b b
compound interest.
b b
LG5 Evaluate the impact of age, education, and geographic location on personal income.
b b b b b b b b b b b b
Exhibit 1.12 says it all. b b b b
LG6 Understand the importance of career choices and their relationship to personal financial
b b b b b b b b b b b b
planning.
b
Exhibit 1.13 shows that the choice of a college major has a financial impact. Of course money
b b b b b b b b b b b b b b b b
cannot buy happiness, but having a bit helps. If you really want to be an elementary school teacher,
b b b b b b b b b b b b b b b b b b
you must recognize that you will not have as much wealth as a lawyer or financial analyst.
b b b b b b b b b b b b b b b b b
The summary of the learning goals at the end of the chapter should aid the student in reviewing the
b b b b b b b b b b b b b b b b b b
chapter when exam time comes. It will be useful to point out to the student how to use this
b b b b b b b b b b b b b b b b b b b
material.
b
Link to Solutions to Financial Planning Exercises
b b b b b b
Pre-tests
