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