STUDY NOTES & REFERENCE GUIDE
SOLUTION MANUAL
Personal Finance, 14th Edition
By E. Thomas Garman, Chapter 1 - 17
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, STUDY NOTES & REFERENCE GUIDE
TABLE OF CONTENTS
Part I: FINANCIAL PLANNING.
1. Understanding Personal Finance.
2. Career Planning.
3. Financial Statements, Goals, and Budgets.
Part II: MONEY MANAGEMENT.
4. Managing Income Taxes.
5. Managing Checking and Savings Accounts.
6. Building and Maintaining Good Credit.
7. Credit Cards and Consumer Loans.
8. Vehicles and Other Major Purchases.
9. Obtaining Affordable Housing.
Part III: INCOME AND ASSET PROTECTION.
10. Managing Property and Liability Risk.
11. Planning for Health Care Expenses.
12. Life Insurance Planning.
Part IV: INVESTMENTS.
13. Investment Fundamentals.
14. Investing in Stocks and Bonds.
15. Mutual and Exchange-Traded Funds.
16. Real Estate and High-Risk Investments.
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, STUDY NOTES & REFERENCE GUIDE
17. Retirement and Estate Planning.
Solution and Answer Guide
GARMAN/FOX, PERSONAL FINANCE 14E, CHAPTER 1: THINKING LIKE A FINANCIAL PLANNER
TABLE OF CONTENTS
Answers to Chapter Concept Checks ....................................................................................................... 2
What Do You Recommend Now? ............................................................................................................ 4
Let’s Talk About It ................................................................................................................................... 5
Do the Math............................................................................................................................................ 6
Financial Planning Cases .......................................................................................................................... 8
Extended Learning ................................................................................................................................ 10
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ANSWERS TO CHAPTER CONCEPT CHECKS
LO1.1 Recognize the keys to achieving financial success.
1. Explain the five steps in the financial planning process.
Answer: There are five fundamental steps to the personal financial planning process: (1) evaluate your
financial health to your education and career choice; (2) define your financial goals; (3) develop a plan of
action to achieve your goals; (4) implement spending and saving plans to monitor and control progress
toward your goals; and (5) review your financial progress and make changes as appropriate.
2. Distinguish among financial success, financial security, and financial happiness.
Answer: Financial success is the achievement of financial aspirations that are desired, planned, or
attempted. Success is defined by the individual or family that seeks it. Financial success may be defined as
being able to live according to one’s standard of living. Financial security is that comfortable feeling that
your financial resources will be adequate to fulfill any needs you have as well as your wants. Financial
happiness is the experience you have when you are satisfied with money matters. People who are happy
about their finances will see a spillover into positive feelings about life in general.
3. Summarize what you will accomplish studying personal finance.
Answer: Several things can be accomplished by studying personal finance. Recognize how to manage
unexpected and expected financial events. Pay as little as possible in income taxes. Understand how to
effectively comparison shop for vehicles and homes. Protect what we own. Invest wisely. Accumulate and
protect the wealth that we may choose to spend during our non-working years (e.g., retirement) or donate.
4. What are the building blocks to achieving financial success?
Answer: The building blocks for achieving financial success include a foundation of regular income that
provides the means to support your lifestyle and save for desired goals in the future. The foundation
supports a base of various banking accounts, insurance protection, and employee benefits. Then we can
establish goals, a recordkeeping system, a budget, and an emergency savings fund. We will also manage
various expenses such as housing, transportation, insurance, and the payment of taxes. We will also need
to handle credit, savings, and educational costs. Finally, we invest in various investment alternatives such
as mutual funds, stocks, and bonds, often for retirement. As a result of all these building blocks, we are
more apt to have a financially successful life.
LO1.2 Understand how the economy affects your personal financial success.
1. Summarize the phases of the business cycle.
Answer: The business cycle entails a wavelike pattern of rising and falling economic activity as measured
by economic indicators like unemployment rates or the gross domestic product. The phases of the
business cycle include expansion (preferred stage—production is high, unemployment low, interest rates
low or falling, stock market and consumer demand high), peak, contraction, downturn, trough, and
recovery.
2. Describe two statistics that help predict the future direction of the economy.
Answer: Forecasting the state of the economy involves predicting, estimating, or calculating what will
happen in advance. We need to be able to forecast the state of the economy, inflation, and interest rates
so that we have advance warning of the directions and strength of changes in economic trends since they
will affect our personal finances. Two statistics we could watch are the consumer confidence index (how
StudyNexa ‐ Stuvia | Page 4 of 382
SOLUTION MANUAL
Personal Finance, 14th Edition
By E. Thomas Garman, Chapter 1 - 17
StudyNexa ‐ Stuvia | Page 1 of 382
, STUDY NOTES & REFERENCE GUIDE
TABLE OF CONTENTS
Part I: FINANCIAL PLANNING.
1. Understanding Personal Finance.
2. Career Planning.
3. Financial Statements, Goals, and Budgets.
Part II: MONEY MANAGEMENT.
4. Managing Income Taxes.
5. Managing Checking and Savings Accounts.
6. Building and Maintaining Good Credit.
7. Credit Cards and Consumer Loans.
8. Vehicles and Other Major Purchases.
9. Obtaining Affordable Housing.
Part III: INCOME AND ASSET PROTECTION.
10. Managing Property and Liability Risk.
11. Planning for Health Care Expenses.
12. Life Insurance Planning.
Part IV: INVESTMENTS.
13. Investment Fundamentals.
14. Investing in Stocks and Bonds.
15. Mutual and Exchange-Traded Funds.
16. Real Estate and High-Risk Investments.
StudyNexa ‐ Stuvia | Page 2 of 382
, STUDY NOTES & REFERENCE GUIDE
17. Retirement and Estate Planning.
Solution and Answer Guide
GARMAN/FOX, PERSONAL FINANCE 14E, CHAPTER 1: THINKING LIKE A FINANCIAL PLANNER
TABLE OF CONTENTS
Answers to Chapter Concept Checks ....................................................................................................... 2
What Do You Recommend Now? ............................................................................................................ 4
Let’s Talk About It ................................................................................................................................... 5
Do the Math............................................................................................................................................ 6
Financial Planning Cases .......................................................................................................................... 8
Extended Learning ................................................................................................................................ 10
StudyNexa ‐ Stuvia | Page 3 of 382
, STUDY NOTES & REFERENCE GUIDE
ANSWERS TO CHAPTER CONCEPT CHECKS
LO1.1 Recognize the keys to achieving financial success.
1. Explain the five steps in the financial planning process.
Answer: There are five fundamental steps to the personal financial planning process: (1) evaluate your
financial health to your education and career choice; (2) define your financial goals; (3) develop a plan of
action to achieve your goals; (4) implement spending and saving plans to monitor and control progress
toward your goals; and (5) review your financial progress and make changes as appropriate.
2. Distinguish among financial success, financial security, and financial happiness.
Answer: Financial success is the achievement of financial aspirations that are desired, planned, or
attempted. Success is defined by the individual or family that seeks it. Financial success may be defined as
being able to live according to one’s standard of living. Financial security is that comfortable feeling that
your financial resources will be adequate to fulfill any needs you have as well as your wants. Financial
happiness is the experience you have when you are satisfied with money matters. People who are happy
about their finances will see a spillover into positive feelings about life in general.
3. Summarize what you will accomplish studying personal finance.
Answer: Several things can be accomplished by studying personal finance. Recognize how to manage
unexpected and expected financial events. Pay as little as possible in income taxes. Understand how to
effectively comparison shop for vehicles and homes. Protect what we own. Invest wisely. Accumulate and
protect the wealth that we may choose to spend during our non-working years (e.g., retirement) or donate.
4. What are the building blocks to achieving financial success?
Answer: The building blocks for achieving financial success include a foundation of regular income that
provides the means to support your lifestyle and save for desired goals in the future. The foundation
supports a base of various banking accounts, insurance protection, and employee benefits. Then we can
establish goals, a recordkeeping system, a budget, and an emergency savings fund. We will also manage
various expenses such as housing, transportation, insurance, and the payment of taxes. We will also need
to handle credit, savings, and educational costs. Finally, we invest in various investment alternatives such
as mutual funds, stocks, and bonds, often for retirement. As a result of all these building blocks, we are
more apt to have a financially successful life.
LO1.2 Understand how the economy affects your personal financial success.
1. Summarize the phases of the business cycle.
Answer: The business cycle entails a wavelike pattern of rising and falling economic activity as measured
by economic indicators like unemployment rates or the gross domestic product. The phases of the
business cycle include expansion (preferred stage—production is high, unemployment low, interest rates
low or falling, stock market and consumer demand high), peak, contraction, downturn, trough, and
recovery.
2. Describe two statistics that help predict the future direction of the economy.
Answer: Forecasting the state of the economy involves predicting, estimating, or calculating what will
happen in advance. We need to be able to forecast the state of the economy, inflation, and interest rates
so that we have advance warning of the directions and strength of changes in economic trends since they
will affect our personal finances. Two statistics we could watch are the consumer confidence index (how
StudyNexa ‐ Stuvia | Page 4 of 382
