Solution Manual for Personal Financial Planning1
G G G G G G
5th Edition by Randy Billingsley, Lawrence J. Git
G G G G G G G
man, Michael D. Joehnk
G G G
,SOLUTION MANUAL FOR G G
Personal Financial Planning 15th Edition by Randy Billingsle
G G G G G G G
y, Lawrence J. Gitman, Michael D. Joehnk
G G G G G G
Understanding the Financi G G
al Planning ProcessChapte
G G G
r1G
HowGWillGThisGAffectGMe?
TheGheartGofGfinancialGplanningGisGmakingGsureGyourGvaluesGlineGupGwithGhowGyouGspendGandGsav
e.GThatGmeansGknowingGwhereGyouGareGfinanciallyGandGplanningGonGhowGtoGgetGwhereGyouGwantGto
GbeGinGtheGfutureGnoGmatterGwhatGlifeGthrowsGatGyou.GForGexample,GhowGshouldGyourGplanGhandleGt
heGprojectionGthatGSocialGSecurityGcostsGmayGexceedGrevenuesGbyG2035?GAndGwhatGifGtheGgovern
mentGdecidesGtoGraiseGtaxGratesGtoGhelpGcoverGtheGfederalGdeficit?GAnGinformedGfinancialGplanGshou
ldGreflectG suchGuncertaintiesGandG more.
ThisGchapterGoverviewsGtheGfinancialGplanningGprocessGandGexplainsGitsGcontext.GTopicsGinclude
GhowGfinancialGplansGchangeGtoG accommodateG yourGcurrentGstageGinGlifeGandGtheGroleGthatGfinanc
ialGplannersGcanGplayGinGhelpingGyouGachieveGyourGobjectives.GAfterGreadingGthisGchapterGyouGwi
llGhaveGaGgoodGperspectiveGonGhowGtoGorganizeG yourGoverallGpersonalGfinancialGplan.
LEARNING GOALS G
LG1GIdentifyGtheGbenefitsGofGusingGpersonalGfinancialGplanningGtechniquesGtoGmanageGyourG
finances.
KeyGconceptGinGthisGsectionGisGtheGplanningGmodelGasGdisplayedGinGExhibitG1.1.GYourGstandardGo
fGlivingGisGgreatlyGimpactedGbyGyourGspendingGhabitsGandGyourGcommitmentGtoGsaving.GYourGspe
ndingGisGmeasuredGbyGyourGpropensityGtoGconsume.GWealthGisGtheGtotalGvalueGofGallGpropertyG
youGownGlessGtheGamountGthatG youGoweGtoGothers.
ACTIVITY:G AskGtheGstudentsGtoGassumeGthatGtheyGhaveGjustG inheritedG$100,000.GWhatGwillGyouG
doGwithGtheG money?GWriteGdownGthreeGwaysG youGwillGspendGorGuseGtheG money.
,AskGtheGstudentsGtoGshareGoneGitemGwithGtheGclassGandGrecordGwhatGtheyGsayGsoGthatGtheGentireGcl
assGcanGreflectGonGtheGanswers.GHopefully,GatGleastGaGfewGwillGmentionGinvestingGevenGifGonlyG$1
0,000GofGtheGamount.GUseGtheirGanswersGtoGdiscussGtakingG careGofGcurrentG needsGversusGfutureGne
eds.
FocusGonGtheirGpropensityGtoGconsumeGandGitsGimpactGonGaccumulatingGwealth.GPointGoutGt
heGFinancialGPlanningGTip,G ―BeGSMARTG inGPlanningG YourGFinancialGGoals.‖
UseGExhibitG1.2GtoGshowGhowGtheGaverageGpersonGearnsGandGspendsGtheirGmoneyGandGExhibitG1.6Gt
oGhelpGtheGstudentG identifyGwhereGtheyGareG now.
LG2GDescribeGtheGpersonalGfinancialGplanningGprocessGandGdefineGyourGgoals.
DwightG Eisenhower,GarmyG generalGandGpresident,GisGquotedGasGsayingG―PlansGareGuseless;GPlannin
gGisGpriceless‖.GTheGprocessGofGplanningGallowsGyouGtoGfocusGonGtheGissuesGthatGareGmostGimport
antGandGtoGbeGreadyGwhenGthingsGchange.
ExhibitG1.3GlistsGtheGSixGStepGFinancialGPlanningGProcess.GTheGfirstGandGmostGimportantGisGdefi
ningGyourGfinancialGgoals.GExhibitG1.6GlistsGgoalsGbyGageGtoGdemonstrateGhowGgoalsGchangeGov
erGtime.GUseGtheGexamplesGinGExhibitG1.5GtoGaskGstudentsGifGtheGassumptionsGareGrealistic.GYes,Gt
heGanswerGisGinGtheGexhibit,GbutGmanyGwillGnotGhaveGreadGchapterGatGthisGpoint.GForGyourGuse,Gt
heGassumptionsGare:
AssumptionG1:GSavingGaGfewGthousandGdollarsGaGyearGshouldGprovideGenoughGtoGfundGmyGchild
‘sGcollegeGEducation.
AssumptionG2:GAnGemergencyGfundGlastingG3GmonthsGshouldGbeGadequate.
AssumptionG3:GIGwillGbeGableGtoGretireGatG65GandGshouldGhaveGplentyGtoGliveGonGinGretireme
nt.GAssumptionG4:GI‘mGrelyingGonGtheGruleGofGthumbGthatGIGwillGneedGonlyG70GpercentGofGm
yGpre-GretirementG incomeGtoG manageGnicelyGinGretirement.
ThereGareGseveralGworksheetsGinGtheGbook.GWorksheetG1.1GgivesGtheGstudentGaGformatGtoGwriteGd
ownGtheirGPersonalGFinancialGGoals.GThereGisGpowerGinGwritingGdownGgoalsG[andGmostGanyGotherG
plan].GRecordingGtheGgoalGandGthenGreviewingGthreeGmonthsGlaterGwillGhelpGyouGtoGkeepGfocusGo
nGtheGgoal.
LG3GExplainGtheGlifeGcycleGofGfinancialGplans,GtheirGroleGinGachievingGyourGfinancialGgoals
,GhowGtoGdealGwithGspecialGplanningGconcerns,GandGtheGuseGofGprofessionalGfinancialGplann
ers.
ExhibitG1.7GcanGhelpGfocusGtheGattentionGonGhowGgoalsGdifferGbetweenGtheGvariousGstagesGofGlife.
GSectionG1-3bGlistsGvariousGdecisionsGthatGyouGwillGhaveGtoGmakeGoverG yourGlife.GTheGsectionG1-
3cGaddressesGSpecialGPlanningGConcerns.GWorksheetG1.2GfocusesGonGtheGfinancialGbenefitGtoGtheG
familyGofGtheGsecondGincome.GIfGtheGsecondGincomeGisGfromGaGminimumGwageGjob,GitGmayGnotGb
eGaGgoodGfinancialGdecision.G OfGcourseGhavingGaGjob,GevenGaG minimumGwageG job,G mayGgiveGtheGp
ersonGpsychicG incomeGthatG willGoverrideGtheG financialGimpact.
WhileGperhapsGoffGtopic,GIGrecallGaGhighGschoolGscienceGteacherGwhoGwasGaGsmoker.GHeGwalkedG
throughGtheGamountGofGmoneyGheGspentGonGpurchasingGtobaccoG products.GThatGcomputationGhadG
a
, lotGtoGdoGwithGmyGdecisionGtoGnotG smoke.GHowGthisGrelatesGtoGtheGcourseGisGthatGthisGisGanGillustra
tionGofGhowGtheGfinancialGimpactGofGaGdecisionGcanGdriveGtheGdecision.
LG4GExamineGtheGeconomicGenvironment’sGinfluenceGonGpersonalGfinancialGplanning.
ForGolderGfolks,GtheGfinancialGcrisisGofG2008-
2009GisGfreshGinGourGmemory.GToGtheGstudentGofG2021,GthatGcrisisGisGmoreGofGhistoryGthanGlife.GIfG
youGcanGshareGaGwarGstoryGonGhowGyouGwereGpersonallyGimpacted,GitGwillGhelpGbringGtheGimpactG
ofGtheGworldGeconomyGonGfinancialGplansGtoGlife.GTheGbookGspeaksGhowGtoGmanageGthisGtypeGofGc
risis,GbutGyouGhadGtoGgoGthroughGitGtoGreallyGunderstandGtheGimpactG itG had.
TheGvalueGofGprofessionalGadviceGisGgreatlyGunderstated.GIfGbyGtalkingGtoGaGprofessionalGyouGcanGp
reventGmakingGaGmistakeG--GthatGcanGbeGofGaGgreatGvalue.GSectionG1-
3eGspeaksGtoGtheGuseGofGprofessionalGfinancialGplanners.GExhibitG1.9GlistsGoutGtheGvariousGcertificati
onsGthatGplannersGhave.
EconomicGorGbusinessGcyclesGareGreal.GPerhapsGtheGmostGusefulGthingGaboutGtheGcyclesGisGtheGkn
owledgeGthatGifGthingsGareGbad,GyouGknowGtheyGwillGgetGbetter.GOfGcourse,GwhenGlifeGisGgood,Gyo
uGknowGthatGtheGbadGcycleGwillGcomeGaroundGagain.GThus,G financialGplanningGrequiresGsavingGinGt
heGgoodGtimesG forGtheGbadGtimes.GG SeeGtheG―TestG Yourself‖GquestionG1-
17GforG aGshortG discussionGofGbusinessGcycles.
TheGpowerGofGcompoundingGisGrarelyGunderstood.GExhibitG1.8GshowsGhowGtheGamountG$10,0
00GwillGgrowGoverGtime.GTheGlongerGtheGinvestmentGstaysGinvested,GtheGgreaterGtheGamountG–
GtheGpowerGofGcompoundG interest.
LG5GEvaluateGtheGimpactGofGage,Geducation,GandGgeographicGlocationGonGpersonalGincome.
ExhibitG1.12GsaysGitGall.
LG6GUnderstandGtheGimportanceGofGcareerGchoicesGandGtheirGrelationshipGtoGpersonalGfinan
cialGplanning.
ExhibitG 1.13GshowsGthatGtheGchoiceGofGaGcollegeG majorGhasGaGfinancialGimpact.GOfGcourseGmoneyGc
annotGbuyGhappiness,GbutGhavingGaGbitGhelps.GIfGyouGreallyGwantGtoGbeGanGelementaryGschoolGteach
er,GyouGmustGrecognizeGthatGyouGwillGnotGhaveGasGmuchGwealthGasGaGlawyerGorGfinancialGanalyst.
TheGsummaryGofGtheGlearningGgoalsGatGtheGendGofGtheGchapterGshouldGaidGtheGstudentGinGreviewi
ngGtheGchapterGwhenGexamGtimeGcomes.GItGwillGbeGusefulGtoGpointGoutGtoGtheGstudentGhowGtoGuse
GthisGmaterial.
LinkGtoGSolutionsGtoGFinancialGPlanningGExercises
Pre-tests
G G G G G G
5th Edition by Randy Billingsley, Lawrence J. Git
G G G G G G G
man, Michael D. Joehnk
G G G
,SOLUTION MANUAL FOR G G
Personal Financial Planning 15th Edition by Randy Billingsle
G G G G G G G
y, Lawrence J. Gitman, Michael D. Joehnk
G G G G G G
Understanding the Financi G G
al Planning ProcessChapte
G G G
r1G
HowGWillGThisGAffectGMe?
TheGheartGofGfinancialGplanningGisGmakingGsureGyourGvaluesGlineGupGwithGhowGyouGspendGandGsav
e.GThatGmeansGknowingGwhereGyouGareGfinanciallyGandGplanningGonGhowGtoGgetGwhereGyouGwantGto
GbeGinGtheGfutureGnoGmatterGwhatGlifeGthrowsGatGyou.GForGexample,GhowGshouldGyourGplanGhandleGt
heGprojectionGthatGSocialGSecurityGcostsGmayGexceedGrevenuesGbyG2035?GAndGwhatGifGtheGgovern
mentGdecidesGtoGraiseGtaxGratesGtoGhelpGcoverGtheGfederalGdeficit?GAnGinformedGfinancialGplanGshou
ldGreflectG suchGuncertaintiesGandG more.
ThisGchapterGoverviewsGtheGfinancialGplanningGprocessGandGexplainsGitsGcontext.GTopicsGinclude
GhowGfinancialGplansGchangeGtoG accommodateG yourGcurrentGstageGinGlifeGandGtheGroleGthatGfinanc
ialGplannersGcanGplayGinGhelpingGyouGachieveGyourGobjectives.GAfterGreadingGthisGchapterGyouGwi
llGhaveGaGgoodGperspectiveGonGhowGtoGorganizeG yourGoverallGpersonalGfinancialGplan.
LEARNING GOALS G
LG1GIdentifyGtheGbenefitsGofGusingGpersonalGfinancialGplanningGtechniquesGtoGmanageGyourG
finances.
KeyGconceptGinGthisGsectionGisGtheGplanningGmodelGasGdisplayedGinGExhibitG1.1.GYourGstandardGo
fGlivingGisGgreatlyGimpactedGbyGyourGspendingGhabitsGandGyourGcommitmentGtoGsaving.GYourGspe
ndingGisGmeasuredGbyGyourGpropensityGtoGconsume.GWealthGisGtheGtotalGvalueGofGallGpropertyG
youGownGlessGtheGamountGthatG youGoweGtoGothers.
ACTIVITY:G AskGtheGstudentsGtoGassumeGthatGtheyGhaveGjustG inheritedG$100,000.GWhatGwillGyouG
doGwithGtheG money?GWriteGdownGthreeGwaysG youGwillGspendGorGuseGtheG money.
,AskGtheGstudentsGtoGshareGoneGitemGwithGtheGclassGandGrecordGwhatGtheyGsayGsoGthatGtheGentireGcl
assGcanGreflectGonGtheGanswers.GHopefully,GatGleastGaGfewGwillGmentionGinvestingGevenGifGonlyG$1
0,000GofGtheGamount.GUseGtheirGanswersGtoGdiscussGtakingG careGofGcurrentG needsGversusGfutureGne
eds.
FocusGonGtheirGpropensityGtoGconsumeGandGitsGimpactGonGaccumulatingGwealth.GPointGoutGt
heGFinancialGPlanningGTip,G ―BeGSMARTG inGPlanningG YourGFinancialGGoals.‖
UseGExhibitG1.2GtoGshowGhowGtheGaverageGpersonGearnsGandGspendsGtheirGmoneyGandGExhibitG1.6Gt
oGhelpGtheGstudentG identifyGwhereGtheyGareG now.
LG2GDescribeGtheGpersonalGfinancialGplanningGprocessGandGdefineGyourGgoals.
DwightG Eisenhower,GarmyG generalGandGpresident,GisGquotedGasGsayingG―PlansGareGuseless;GPlannin
gGisGpriceless‖.GTheGprocessGofGplanningGallowsGyouGtoGfocusGonGtheGissuesGthatGareGmostGimport
antGandGtoGbeGreadyGwhenGthingsGchange.
ExhibitG1.3GlistsGtheGSixGStepGFinancialGPlanningGProcess.GTheGfirstGandGmostGimportantGisGdefi
ningGyourGfinancialGgoals.GExhibitG1.6GlistsGgoalsGbyGageGtoGdemonstrateGhowGgoalsGchangeGov
erGtime.GUseGtheGexamplesGinGExhibitG1.5GtoGaskGstudentsGifGtheGassumptionsGareGrealistic.GYes,Gt
heGanswerGisGinGtheGexhibit,GbutGmanyGwillGnotGhaveGreadGchapterGatGthisGpoint.GForGyourGuse,Gt
heGassumptionsGare:
AssumptionG1:GSavingGaGfewGthousandGdollarsGaGyearGshouldGprovideGenoughGtoGfundGmyGchild
‘sGcollegeGEducation.
AssumptionG2:GAnGemergencyGfundGlastingG3GmonthsGshouldGbeGadequate.
AssumptionG3:GIGwillGbeGableGtoGretireGatG65GandGshouldGhaveGplentyGtoGliveGonGinGretireme
nt.GAssumptionG4:GI‘mGrelyingGonGtheGruleGofGthumbGthatGIGwillGneedGonlyG70GpercentGofGm
yGpre-GretirementG incomeGtoG manageGnicelyGinGretirement.
ThereGareGseveralGworksheetsGinGtheGbook.GWorksheetG1.1GgivesGtheGstudentGaGformatGtoGwriteGd
ownGtheirGPersonalGFinancialGGoals.GThereGisGpowerGinGwritingGdownGgoalsG[andGmostGanyGotherG
plan].GRecordingGtheGgoalGandGthenGreviewingGthreeGmonthsGlaterGwillGhelpGyouGtoGkeepGfocusGo
nGtheGgoal.
LG3GExplainGtheGlifeGcycleGofGfinancialGplans,GtheirGroleGinGachievingGyourGfinancialGgoals
,GhowGtoGdealGwithGspecialGplanningGconcerns,GandGtheGuseGofGprofessionalGfinancialGplann
ers.
ExhibitG1.7GcanGhelpGfocusGtheGattentionGonGhowGgoalsGdifferGbetweenGtheGvariousGstagesGofGlife.
GSectionG1-3bGlistsGvariousGdecisionsGthatGyouGwillGhaveGtoGmakeGoverG yourGlife.GTheGsectionG1-
3cGaddressesGSpecialGPlanningGConcerns.GWorksheetG1.2GfocusesGonGtheGfinancialGbenefitGtoGtheG
familyGofGtheGsecondGincome.GIfGtheGsecondGincomeGisGfromGaGminimumGwageGjob,GitGmayGnotGb
eGaGgoodGfinancialGdecision.G OfGcourseGhavingGaGjob,GevenGaG minimumGwageG job,G mayGgiveGtheGp
ersonGpsychicG incomeGthatG willGoverrideGtheG financialGimpact.
WhileGperhapsGoffGtopic,GIGrecallGaGhighGschoolGscienceGteacherGwhoGwasGaGsmoker.GHeGwalkedG
throughGtheGamountGofGmoneyGheGspentGonGpurchasingGtobaccoG products.GThatGcomputationGhadG
a
, lotGtoGdoGwithGmyGdecisionGtoGnotG smoke.GHowGthisGrelatesGtoGtheGcourseGisGthatGthisGisGanGillustra
tionGofGhowGtheGfinancialGimpactGofGaGdecisionGcanGdriveGtheGdecision.
LG4GExamineGtheGeconomicGenvironment’sGinfluenceGonGpersonalGfinancialGplanning.
ForGolderGfolks,GtheGfinancialGcrisisGofG2008-
2009GisGfreshGinGourGmemory.GToGtheGstudentGofG2021,GthatGcrisisGisGmoreGofGhistoryGthanGlife.GIfG
youGcanGshareGaGwarGstoryGonGhowGyouGwereGpersonallyGimpacted,GitGwillGhelpGbringGtheGimpactG
ofGtheGworldGeconomyGonGfinancialGplansGtoGlife.GTheGbookGspeaksGhowGtoGmanageGthisGtypeGofGc
risis,GbutGyouGhadGtoGgoGthroughGitGtoGreallyGunderstandGtheGimpactG itG had.
TheGvalueGofGprofessionalGadviceGisGgreatlyGunderstated.GIfGbyGtalkingGtoGaGprofessionalGyouGcanGp
reventGmakingGaGmistakeG--GthatGcanGbeGofGaGgreatGvalue.GSectionG1-
3eGspeaksGtoGtheGuseGofGprofessionalGfinancialGplanners.GExhibitG1.9GlistsGoutGtheGvariousGcertificati
onsGthatGplannersGhave.
EconomicGorGbusinessGcyclesGareGreal.GPerhapsGtheGmostGusefulGthingGaboutGtheGcyclesGisGtheGkn
owledgeGthatGifGthingsGareGbad,GyouGknowGtheyGwillGgetGbetter.GOfGcourse,GwhenGlifeGisGgood,Gyo
uGknowGthatGtheGbadGcycleGwillGcomeGaroundGagain.GThus,G financialGplanningGrequiresGsavingGinGt
heGgoodGtimesG forGtheGbadGtimes.GG SeeGtheG―TestG Yourself‖GquestionG1-
17GforG aGshortG discussionGofGbusinessGcycles.
TheGpowerGofGcompoundingGisGrarelyGunderstood.GExhibitG1.8GshowsGhowGtheGamountG$10,0
00GwillGgrowGoverGtime.GTheGlongerGtheGinvestmentGstaysGinvested,GtheGgreaterGtheGamountG–
GtheGpowerGofGcompoundG interest.
LG5GEvaluateGtheGimpactGofGage,Geducation,GandGgeographicGlocationGonGpersonalGincome.
ExhibitG1.12GsaysGitGall.
LG6GUnderstandGtheGimportanceGofGcareerGchoicesGandGtheirGrelationshipGtoGpersonalGfinan
cialGplanning.
ExhibitG 1.13GshowsGthatGtheGchoiceGofGaGcollegeG majorGhasGaGfinancialGimpact.GOfGcourseGmoneyGc
annotGbuyGhappiness,GbutGhavingGaGbitGhelps.GIfGyouGreallyGwantGtoGbeGanGelementaryGschoolGteach
er,GyouGmustGrecognizeGthatGyouGwillGnotGhaveGasGmuchGwealthGasGaGlawyerGorGfinancialGanalyst.
TheGsummaryGofGtheGlearningGgoalsGatGtheGendGofGtheGchapterGshouldGaidGtheGstudentGinGreviewi
ngGtheGchapterGwhenGexamGtimeGcomes.GItGwillGbeGusefulGtoGpointGoutGtoGtheGstudentGhowGtoGuse
GthisGmaterial.
LinkGtoGSolutionsGtoGFinancialGPlanningGExercises
Pre-tests
