SOLUTION MANUAL
Personal Financial Planning,16th Edition
by Billingsley, Gitman, Chapters 1 - 15, Complete
Table of Contents
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Part I: FOUNDATIONS OF FINANCIAL PLANNING.
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,1. Understanding the Financial Planning Process.
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2. Developing Your Financial Statements and Plans.
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3. Preparing Your Taxes.
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Part II: MANAGING BASIC ASSETS.
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4. Managing Your Cash and Savings.
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5. Making Automobile and Housing Decisions.
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Part III: MANAGING CREDIT.
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6. Using Credit.
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7. Using Consumer Loans.
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Part IV: MANAGING INSURANCE NEEDS.
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8. Insuring Your Life.
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9. Insuring Your Health.
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10. Protecting Your Property.
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Part V: MANAGING INVESTMENTS.
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11. Investment Planning.
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12. Investing in Stocks and Bonds.
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13. Investing in Mutual Funds and Real Estate.
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Part VI: RETIREMENT AND ESTATE PLANNING.
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14. Planning for Retirement.
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15. Preserving Your Estate.
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Chapter 1 gw
Understanding the Financial Planning Process gw gw gw gw
How Will This Affect Me?
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The heart of financial planning is making sure your values line up with how you spend and save.That
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,means knowing where you are financially and planning on how to get where you want to bein the fut
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ure no matter what life throws at you. For example, how should your plan handle the projection that
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Social Security costs may exceed revenues by 2035? And what if the governmentdecides to raise ta
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x rates to help cover the federal deficit? An informed financial plan should reflect such uncertainties
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and more. gw
This chapter overviews the financial planning process and explains its context. Topics include how fi
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nancial plans change to accommodate your current stage in life and the role that financialplanners
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can play in helping you achieve your objectives. After reading this chapter you will have a good p
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erspective on how to organize your overall personal financial plan.
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LEARNING GOALS gw
LG1 Identify the benefits of using personal financial planning techniques to manage yourfin
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ances.
Key concept in this section is the planning model as displayed in Exhibit 1.1. Your standard of living i
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s greatly impacted by your spending habits and your commitment to saving. Your spending is measure
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d by your propensity to consume. Wealth is the total value of all propertyyou own less the amount
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that you owe to others.
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ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will youdo wit
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h the money? Write down three ways you will spend or use the money.
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, Ask the students to share one item with the class and record what they say so that the entire classcan r
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eflect on the answers. Hopefully, at least a few will mention investing even if only $10,000of the am
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ount. Use their answers to discuss taking care of current needs versus future needs.
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Focus on their propensity to consume and its impact on accumulating wealth. Point out theFinancial Pl
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anning Tip, ―Be SMART in Planning Your Financial Goals.‖
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Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit 1.6 tohel
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p the student identify where they are now.
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LG2 Describe the personal financial planning process and define your goals.
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Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless; Planning is p
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riceless‖. The process of planning allows you to focus on the issues that are most important and to be
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ready when things change. gw gw gw
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is defining your
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financial goals. Exhibit 1.6 lists goals by age to demonstrate how goals change over time. Use the
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examples in Exhibit 1.5 to ask students if the assumptions are realistic. Yes,the answer is in the exhib
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it, but many will not have read chapter at this point. For your use, the assumptions are:
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Assumption 1: Saving a few thousand dollars a year should provide enough to fund my child‘scoll gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw w
g
ege Education. gw
Assumption 2: An emergency fund lasting 3 months should be adequate. gw gw gw gw gw gw gw gw gw gw
Assumption 3: I will be able to retire at 65 and should have plenty to live on in retirement.As gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw w
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sumption 4: I‘m relying on the rule of thumb that I will need only 70 percent of my pre-
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retirement income to manage nicely in retirement.
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There are several worksheets in the book. Worksheet 1.1 gives the student a format to write down t
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heir Personal Financial Goals. There is power in writing down goals [and most any otherplan]. Recor
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ding the goal and then reviewing three months later will help you to keep focus on the goal.
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LG3 Explain the life cycle of financial plans, their role in achieving your financial goals, how
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to deal with special planning concerns, and the use of professional financial planners.
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Exhibit 1.7 can help focus the attention on how goals differ between the various stages of life. Sectio
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n 1-3b lists various decisions that you will have to make over your life. The section 1-
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3c addresses Special Planning Concerns. Worksheet 1.2 focuses on the financial benefit to the famil
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y of the second income. If the second income is from a minimum wage job, it may not be agood financ
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ial decision. Of course having a job, even a minimum wage job, may give the personpsychic income t
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hat will override the financial impact.
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While perhaps off topic, I recall a high school science teacher who was a smoker. He walked through
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the amount of money he spent on purchasing tobacco products. That computation had a
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Personal Financial Planning,16th Edition
by Billingsley, Gitman, Chapters 1 - 15, Complete
Table of Contents
gw gw gw
Part I: FOUNDATIONS OF FINANCIAL PLANNING.
gw gw gw gw gw
,1. Understanding the Financial Planning Process.
gw gw gw gw gw
2. Developing Your Financial Statements and Plans.
gw gw gw gw gw gw
3. Preparing Your Taxes.
gw gw gw
Part II: MANAGING BASIC ASSETS.
gw gw gw gw
4. Managing Your Cash and Savings.
gw gw gw gw gw
5. Making Automobile and Housing Decisions.
gw gw gw gw gw
Part III: MANAGING CREDIT.
gw gw gw
6. Using Credit.
gw gw
7. Using Consumer Loans.
gw gw gw
Part IV: MANAGING INSURANCE NEEDS.
gw gw gw gw
8. Insuring Your Life.
gw gw gw
9. Insuring Your Health.
gw gw gw
10. Protecting Your Property.
gw gw gw
Part V: MANAGING INVESTMENTS.
gw gw gw
11. Investment Planning.
gw gw
12. Investing in Stocks and Bonds.
gw gw gw gw gw
13. Investing in Mutual Funds and Real Estate.
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Part VI: RETIREMENT AND ESTATE PLANNING.
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14. Planning for Retirement.
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15. Preserving Your Estate.
gw gw gw
Chapter 1 gw
Understanding the Financial Planning Process gw gw gw gw
How Will This Affect Me?
gw gw gw gw
The heart of financial planning is making sure your values line up with how you spend and save.That
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw w
g gw
,means knowing where you are financially and planning on how to get where you want to bein the fut
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw w
g gw gw
ure no matter what life throws at you. For example, how should your plan handle the projection that
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
Social Security costs may exceed revenues by 2035? And what if the governmentdecides to raise ta
gw gw gw gw gw gw gw gw gw gw gw gw w
g gw gw gw
x rates to help cover the federal deficit? An informed financial plan should reflect such uncertainties
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
and more. gw
This chapter overviews the financial planning process and explains its context. Topics include how fi
gw gw gw gw gw gw gw gw gw gw gw gw gw gw
nancial plans change to accommodate your current stage in life and the role that financialplanners
gw gw gw gw gw gw gw gw gw gw gw gw gw gw w
g gw
can play in helping you achieve your objectives. After reading this chapter you will have a good p
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
erspective on how to organize your overall personal financial plan.
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LEARNING GOALS gw
LG1 Identify the benefits of using personal financial planning techniques to manage yourfin
gw gw gw gw gw gw gw gw gw gw gw gw w
g
ances.
Key concept in this section is the planning model as displayed in Exhibit 1.1. Your standard of living i
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
s greatly impacted by your spending habits and your commitment to saving. Your spending is measure
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
d by your propensity to consume. Wealth is the total value of all propertyyou own less the amount
gw gw gw gw gw gw gw gw gw gw gw gw gw w
g gw gw gw gw gw
that you owe to others.
gw gw gw gw
ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will youdo wit
g w gw gw gw gw gw gw gw gw gw gw gw gw gw w
g gw
h the money? Write down three ways you will spend or use the money.
gw gw gw gw gw gw gw gw gw gw gw gw gw
, Ask the students to share one item with the class and record what they say so that the entire classcan r
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw w
g gw
eflect on the answers. Hopefully, at least a few will mention investing even if only $10,000of the am
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw w
g gw gw
ount. Use their answers to discuss taking care of current needs versus future needs.
g w gw gw gw gw gw gw gw gw gw gw gw gw
Focus on their propensity to consume and its impact on accumulating wealth. Point out theFinancial Pl
gw gw gw gw gw gw gw gw gw gw gw gw gw gw w
g gw
anning Tip, ―Be SMART in Planning Your Financial Goals.‖
gw gw gw gw gw gw gw gw
Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit 1.6 tohel
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw w
g
p the student identify where they are now.
gw gw gw gw gw gw gw
LG2 Describe the personal financial planning process and define your goals.
gw gw gw gw gw gw gw gw gw gw
Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless; Planning is p
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
riceless‖. The process of planning allows you to focus on the issues that are most important and to be
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
ready when things change. gw gw gw
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is defining your
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
financial goals. Exhibit 1.6 lists goals by age to demonstrate how goals change over time. Use the
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
examples in Exhibit 1.5 to ask students if the assumptions are realistic. Yes,the answer is in the exhib
gw gw gw gw gw gw gw gw gw gw gw gw w
g gw gw gw gw gw
it, but many will not have read chapter at this point. For your use, the assumptions are:
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
Assumption 1: Saving a few thousand dollars a year should provide enough to fund my child‘scoll gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw w
g
ege Education. gw
Assumption 2: An emergency fund lasting 3 months should be adequate. gw gw gw gw gw gw gw gw gw gw
Assumption 3: I will be able to retire at 65 and should have plenty to live on in retirement.As gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw w
g
sumption 4: I‘m relying on the rule of thumb that I will need only 70 percent of my pre-
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
retirement income to manage nicely in retirement.
w
g gw gw gw gw gw gw
There are several worksheets in the book. Worksheet 1.1 gives the student a format to write down t
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
heir Personal Financial Goals. There is power in writing down goals [and most any otherplan]. Recor
gw gw gw gw gw gw gw gw gw gw gw gw gw gw w
g gw
ding the goal and then reviewing three months later will help you to keep focus on the goal.
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
LG3 Explain the life cycle of financial plans, their role in achieving your financial goals, how
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
to deal with special planning concerns, and the use of professional financial planners.
gw gw gw gw gw gw gw gw gw gw gw gw
Exhibit 1.7 can help focus the attention on how goals differ between the various stages of life. Sectio
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
n 1-3b lists various decisions that you will have to make over your life. The section 1-
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw
3c addresses Special Planning Concerns. Worksheet 1.2 focuses on the financial benefit to the famil
gw gw gw gw gw gw gw gw gw gw gw gw gw gw
y of the second income. If the second income is from a minimum wage job, it may not be agood financ
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw w
g gw
ial decision. Of course having a job, even a minimum wage job, may give the personpsychic income t
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw w
g gw gw
hat will override the financial impact.
gw gw gw gw gw
While perhaps off topic, I recall a high school science teacher who was a smoker. He walked through
gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw gw g
the amount of money he spent on purchasing tobacco products. That computation had a
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