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