Solution Manual for Personal Financial Planning 15th Edition by Randy Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Table
ofCon
g




tents
g




Part I: FO
g g




UNDAT
g




ONSOFFINANCIALPLANNING.
1. UnderstandingtheFinancialPlanningProcess.
g g g

,2. DevelopingYourFinancialStatementsandPlans. g g g g




3. PreparingYourTaxes. g g




Part II: MANAGINGBASICASSETS.
g g




4. ManagingYourCashandSavings. g g g




5. MakingAutomobileandHousingDecisions.
g g g




PartIII:MANAGINGCREDIT.
g g g




6. UsingCredit. g




7. UsingConsumer Loans. g g




PartIV:MANAGINGINSURANCENEEDS.
g g




8. InsuringYourLife. g g




9. InsuringYourHealth. g g




10. Protecting YourProperty. g g




PartV:MANAGINGINVESTMENTS.
g




11. InvestmentPlanning. g




12. Investing in Stocksand Bonds. g g g




13. InvestinginMutualFundsandRealEstate. g g g g g




Part VI: RETIREMENTAND ESTATEPLANNING.
g g g g




14. PlanningforRetirement.
15. Preserving YourEstate. g g




Chapter1
UnderstandingtheFinancialPlanningProcess
How Will This Affect Me?
g g g g




The heart of financial planning is making sure your values line up with how you spend and save.That me ans
g g g g g tr g g g tr g g g g g g g tr g g




knowing where you are financially and planning on how to get where you want to bein the future n o matter
g g g g g g g g g g g g g g g g g g g g g




whatlifethrows atyou.Forexample, howshouldyourplanhandletheprojectionthatSocialS
g g g tr g g g tr g g g g g g g g g

,ecurity costs may exceed revenues by 2035? And what if the governmentdecides to raise tax rates to help
g g g g g g g g g g g g g g g g g




coverthefederaldeficit?Aninformedfinancialplanshouldreflect suchuncertaintiesand more.
g g g g g g g g g g g g g




This chapter overviews the financial planning process and explains its context. Topics include how fin
g g g g g g g g g g g g g g




ancialplanschangetoaccommodateyourcurrentstageinlifeandtherolethatfinancialplannersca nplay
g g g g g g g g g g g g g g g g g g




inhelpingyou achieveyourobjectives.Afterreadingthischapteryouwillhaveagoodperspe ctive
g g g tr g g g g g g g g g g g g g




onhowto organize your overallpersonal financialplan.
g g g g g g




LEARNINGGOALS
LG1 Identify the benefits of using personal financial planning techniques to manage yourfinan ces.
g g tr tr g g g g g g g g g




Key concept in this section is the planning model as displayed in Exhibit 1.1. Your standard of living is g reatly
g g g tr g tr g g g g g g g g g g g g g g




impacted by your spending habits and your commitment to saving. Your spending is measured by your
g g g g g g g g g g g g g g g g




propensity to consume. Wealth is the total value of all propertyyou own less the amount that yo u oweto
g g g g g g g g g g g g g g g g g g g




others.
g




ACTIVITY: Ask the studentstoassumethat theyhave just inherited $100,000. What will youdo with t he
g tr g g g g g g g g g g g




money? Writedownthreeways youwillspend orusethe money.
g g g g g g g g g g g

, Ask the students to share one itemwiththe class and record whattheysayso that the entire class can refl ect on
tr g tr g g g g g g g tr g g g tr g g g




the answers. Hopefully, at least a few will mention investing even if only $10,000ofthe amount.
g g g tr g g g g g g g g g g g




Use their answersto discuss taking care ofcurrent needs versus future needs.
tr g g g g g tr g g g g




Focus on their propensity to consume and its impact on accumulating wealth. Point out theFinancialPlan ning
g g g g tr g g tr g g g g g g g g




Tip, ―BeSMART inPlanning YourFinancialGoals.‖
g trg g g g g g g




Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit 1.6 toh elp t
g g g g g g g g g g g g g g g g g tr g




he student identifywhere theyare now.
g g g g




LG2 Describe the personalfinancialplanning processand define yourgoals.
g g tr g g g tr g




Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless; Planning is pric eless‖.
g g g tr g tr g g g g g tr g g g g g




The process of planning allows you to focus on the issues that are most important and to be read ywhen
g g g g g g g g g g g g g g g g g g g g




thingschange.
g g




Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is defining your fi
g g g g tr g g g g g g g g g g g g




nancialgoals.Exhibit1.6listsgoals byagetodemonstratehowgoalschangeovertime. Usetheexa mples
g g g g g g tr g g g g g g g g g g g g




inExhibit 1.5 to askstudentsifthe assumptions are realistic. Yes,the answer is in the exhibit, but manywillnot
g g g g g g tr g g tr g g g g g g g g g




havereadchapteratthispoint.Foryouruse,theassumptionsare:
g g g g g g g g g g g g




Assumption 1: Saving a fewthousanddollarsa year should provide enoughtofund mychild‘scolleg e g g g g g g g g g g




Education.
g




Assumption 2: Anemergencyfund lasting3 monthsshould beadequate. g g g g g g g g




Assumption3:Iwillbeabletoretireat65andshouldhaveplentytoliveon inretirement.Assu mption 4: g g g g g g g g g g g g g g g g tr g g g




I‘mrelying ontheruleof thumb that Iwillneedonly70 percent ofmypre-
g g g g g g g g g g g g g g g g g




retirement income to manage nicely inretirement. g g g g g g




There are several worksheets in the book. Worksheet 1.1 gives the student a format to write downthe ir
g g g g g g g g g g g g g g g g g




Personal Financial Goals. There is power inwriting down goals [and most anyotherplan]. Recording the
g g g g g g g g tr g g g g




goalandthenreviewing three monthslaterwillhelp youto keep focus onthegoal.
g g g g g g g g g g g tr g g g g




LG3 Explain the life cycleof financial plans, their role in achieving your financial goals, how to
g g g tr g g g g g tr g g g g g g




dealwith specialplanning concerns, and the use of professionalfinancialplanners.
g g g g g tr g g




Exhibit 1.7 can help focus the attention on how goals differ between the various stages of life. Section 1-3b
g g g g g g g g g g g g g g g g g g




lists various decisionsthat you willhaveto make overyourlife.Thesection 1-
g tr g g g tr g g g g g g g g g




3c addressesSpecialPlanningConcerns.Worksheet1.2focusesonthefinancialbenefittothefamily of the
tr g g g g g g g g g g g g g g g




second income. If the second income is from a minimum wage job, it may not be agoodfinanciald ecision.
g g g g g g g g g g g g g g g g g g g




Ofcourse having a job, even a minimum wage job, maygive the personpsychic income that will overridethe
g g g g tr g g tr g g g g g g g g g




financialimpact.
g g




While perhaps off topic, I recall a high school science teacher who was a smoker. He walked throughth e
g tr g g g g g g g g g tr g g g g g g




amountofmoneyhespentonpurchasingtobacco products. Thatcomputationhada
g g g g g g g g g g g g