1|Page
Solution Manual For Personal Financial Planning 16th Edition Author:
Randy Billingsley, Lawrence J. Gitman, Michael D.
Joehnk||9780357438480||All Chapters|| LATEST VERSION
,2|Page
Understanding The Financial
Planning ProcessChapter 1
How Will This Affect Me?
The Heart Of Financial Planning Is Making Sure Your Values Line Up With How You Spend And Save.That
Means Knowing Where You Are Financially And Planning On How To Get Where You Want To BeIn The
Future No Matter What Life Throws At You. For Example, How Should Your Plan Handle The Projection
That Social Security Costs May Exceed Revenues By 2035? And What If The GovernmentDecides To Raise
Tax Rates To Help Cover The Federal Deficit? An Informed Financial Plan Should Reflect Such
Uncertainties And More.
This Chapter Overviews The Financial Planning Process And Explains Its Context. Topics Include How
Financial Plans Change To Accommodate Your Current Stage In Life And The Role That Financial
Planners Can Play In Helping You Achieve Your Objectives. After Reading This Chapter You Will Have A
Good Perspective On How To Organize Your Overall Personal Financial Plan.
LEARNING GOALS
LG1 Identify The Benefits Of Using Personal Financial Planning Techniques To Manage YourFinances.
Key Concept In This Section Is The Planning Model As Displayed In Exhibit 1.1. Your Standard Of Living
Is Greatly Impacted By Your Spending Habits And Your Commitment To Saving. Your Spending Is
Measured By Your Propensity To Consume. Wealth Is The Total Value Of All PropertyYou Own Less The
Amount That You Owe To Others.
ACTIVITY: Ask The Students To Assume That They Have Just Inherited $100,000. What Will YouDo With
The Money? Write Down Three Ways You Will Spend Or Use The Money.
,3|Page
Ask The Students To Share One Item With The Class And Record What They Say So That The Entire Class
Can Reflect On The Answers. Hopefully, At Least A Few Will Mention Investing Even If Only $10,000 Of
The Amount. Use Their Answers To Discuss Taking Care Of Current Needs Versus Future Needs.
Focus On Their Propensity To Consume And Its Impact On Accumulating Wealth. Point Out The
Financial Planning Tip, ―Be SMART In Planning Your Financial Goals.‖
Use Exhibit 1.2 To Show How The Average Person Earns And Spends Their Money And Exhibit 1.6 ToHelp
The Student Identify Where They Are Now.
LG2 Describe The Personal Financial Planning Process And Define Your Goals.
Dwight Eisenhower, Army General And President, Is Quoted As Saying ―Plans Are Useless; Planning Is
Priceless‖. The Process Of Planning Allows You To Focus On The Issues That Are Most Important And To
Be Ready When Things Change.
Exhibit 1.3 Lists The Six Step Financial Planning Process. The First And Most Important Is Defining Your
Financial Goals. Exhibit 1.6 Lists Goals By Age To Demonstrate How Goals Change Over Time. Use The
Examples In Exhibit 1.5 To Ask Students If The Assumptions Are Realistic. Yes,The Answer Is In The
Exhibit, But Many Will Not Have Read Chapter At This Point. For Your Use, TheAssumptions Are:
Assumption 1: Saving A Few Thousand Dollars A Year Should Provide Enough To Fund My Child‘S
College Education.
Assumption 2: An Emergency Fund Lasting 3 Months Should Be Adequate.
Assumption 3: I Will Be Able To Retire At 65 And Should Have Plenty To Live On In Retirement.
Assumption 4: I‘M Relying On The Rule Of Thumb That I Will Need Only 70 Percent Of My Pre-
Retirement Income To Manage Nicely In Retirement.
There Are Several Worksheets In The Book. Worksheet 1.1 Gives The Student A Format To Write Down
Their Personal Financial Goals. There Is Power In Writing Down Goals [And Most Any OtherPlan].
Recording The Goal And Then Reviewing Three Months Later Will Help You To Keep Focus OnThe Goal.
LG3 Explain The Life Cycle Of Financial Plans, Their Role In Achieving Your Financial Goals, How To Deal
With Special Planning Concerns, And The Use Of Professional Financial Planners.
Exhibit 1.7 Can Help Focus The Attention On How Goals Differ Between The Various Stages Of Life.
Section 1-3b Lists Various Decisions That You Will Have To Make Over Your Life. The Section 1-3c
Addresses Special Planning Concerns. Worksheet 1.2 Focuses On The Financial Benefit To The Family Of
The Second Income. If The Second Income Is From A Minimum Wage Job, It May Not Be AGood
Financial Decision. Of Course Having A Job, Even A Minimum Wage Job, May Give The PersonPsychic
Income That Will Override The Financial Impact.
While Perhaps Off Topic, I Recall A High School Science Teacher Who Was A Smoker. He Walked
Through The Amount Of Money He Spent On Purchasing Tobacco Products. That Computation Had A
,4|Page
Lot To Do With My Decision To Not Smoke. How This Relates To The Course Is That This Is AnIllustration
Of How The Financial Impact Of A Decision Can Drive The Decision.
LG4 Examine The Economic Environment’s Influence On Personal Financial Planning.
For Older Folks, The Financial Crisis Of 2008-2009 Is Fresh In Our Memory. To The Student Of 2021,That
Crisis Is More Of History Than Life. If You Can Share A War Story On How You Were Personally
Impacted, It Will Help Bring The Impact Of The World Economy On Financial Plans To Life. The Book
Speaks How To Manage This Type Of Crisis, But You Had To Go Through It To Really Understand The
Impact It Had.
The Value Of Professional Advice Is Greatly Understated. If By Talking To A Professional You Can Prevent
Making A Mistake -- That Can Be Of A Great Value. Section 1-3e Speaks To The Use Of Professional
Financial Planners. Exhibit 1.9 Lists Out The Various Certifications That Planners Have.
Economic Or Business Cycles Are Real. Perhaps The Most Useful Thing About The Cycles Is The
Knowledge That If Things Are Bad, You Know They Will Get Better. Of Course, When Life Is Good, You
Know That The Bad Cycle Will Come Around Again. Thus, Financial Planning Requires Saving InThe Good
Times For The Bad Times. See The ―Test Yourself‖ Question 1-17 For A Short Discussion Of Business
Cycles.
The Power Of Compounding Is Rarely Understood. Exhibit 1.8 Shows How The Amount $10,000Will
Grow Over Time. The Longer The Investment Stays Invested, The Greater The Amount – The Power
Of Compound Interest.
LG5 Evaluate The Impact Of Age, Education, And Geographic Location On Personal Income.
Exhibit 1.12 Says It All.
LG6 Understand The Importance Of Career Choices And Their Relationship To PersonalFinancial Planning.
Exhibit 1.13 Shows That The Choice Of A College Major Has A Financial Impact. Of Course MoneyCannot
Buy Happiness, But Having A Bit Helps. If You Really Want To Be An Elementary School Teacher, You
Must Recognize That You Will Not Have As Much Wealth As A Lawyer Or Financial Analyst.
The Summary Of The Learning Goals At The End Of The Chapter Should Aid The Student In Reviewing
The Chapter When Exam Time Comes. It Will Be Useful To Point Out To The Student How To Use This
Material.
Link To Solutions To Financial Planning Exercises
Pre-Tests
Solution Manual For Personal Financial Planning 16th Edition Author:
Randy Billingsley, Lawrence J. Gitman, Michael D.
Joehnk||9780357438480||All Chapters|| LATEST VERSION
,2|Page
Understanding The Financial
Planning ProcessChapter 1
How Will This Affect Me?
The Heart Of Financial Planning Is Making Sure Your Values Line Up With How You Spend And Save.That
Means Knowing Where You Are Financially And Planning On How To Get Where You Want To BeIn The
Future No Matter What Life Throws At You. For Example, How Should Your Plan Handle The Projection
That Social Security Costs May Exceed Revenues By 2035? And What If The GovernmentDecides To Raise
Tax Rates To Help Cover The Federal Deficit? An Informed Financial Plan Should Reflect Such
Uncertainties And More.
This Chapter Overviews The Financial Planning Process And Explains Its Context. Topics Include How
Financial Plans Change To Accommodate Your Current Stage In Life And The Role That Financial
Planners Can Play In Helping You Achieve Your Objectives. After Reading This Chapter You Will Have A
Good Perspective On How To Organize Your Overall Personal Financial Plan.
LEARNING GOALS
LG1 Identify The Benefits Of Using Personal Financial Planning Techniques To Manage YourFinances.
Key Concept In This Section Is The Planning Model As Displayed In Exhibit 1.1. Your Standard Of Living
Is Greatly Impacted By Your Spending Habits And Your Commitment To Saving. Your Spending Is
Measured By Your Propensity To Consume. Wealth Is The Total Value Of All PropertyYou Own Less The
Amount That You Owe To Others.
ACTIVITY: Ask The Students To Assume That They Have Just Inherited $100,000. What Will YouDo With
The Money? Write Down Three Ways You Will Spend Or Use The Money.
,3|Page
Ask The Students To Share One Item With The Class And Record What They Say So That The Entire Class
Can Reflect On The Answers. Hopefully, At Least A Few Will Mention Investing Even If Only $10,000 Of
The Amount. Use Their Answers To Discuss Taking Care Of Current Needs Versus Future Needs.
Focus On Their Propensity To Consume And Its Impact On Accumulating Wealth. Point Out The
Financial Planning Tip, ―Be SMART In Planning Your Financial Goals.‖
Use Exhibit 1.2 To Show How The Average Person Earns And Spends Their Money And Exhibit 1.6 ToHelp
The Student Identify Where They Are Now.
LG2 Describe The Personal Financial Planning Process And Define Your Goals.
Dwight Eisenhower, Army General And President, Is Quoted As Saying ―Plans Are Useless; Planning Is
Priceless‖. The Process Of Planning Allows You To Focus On The Issues That Are Most Important And To
Be Ready When Things Change.
Exhibit 1.3 Lists The Six Step Financial Planning Process. The First And Most Important Is Defining Your
Financial Goals. Exhibit 1.6 Lists Goals By Age To Demonstrate How Goals Change Over Time. Use The
Examples In Exhibit 1.5 To Ask Students If The Assumptions Are Realistic. Yes,The Answer Is In The
Exhibit, But Many Will Not Have Read Chapter At This Point. For Your Use, TheAssumptions Are:
Assumption 1: Saving A Few Thousand Dollars A Year Should Provide Enough To Fund My Child‘S
College Education.
Assumption 2: An Emergency Fund Lasting 3 Months Should Be Adequate.
Assumption 3: I Will Be Able To Retire At 65 And Should Have Plenty To Live On In Retirement.
Assumption 4: I‘M Relying On The Rule Of Thumb That I Will Need Only 70 Percent Of My Pre-
Retirement Income To Manage Nicely In Retirement.
There Are Several Worksheets In The Book. Worksheet 1.1 Gives The Student A Format To Write Down
Their Personal Financial Goals. There Is Power In Writing Down Goals [And Most Any OtherPlan].
Recording The Goal And Then Reviewing Three Months Later Will Help You To Keep Focus OnThe Goal.
LG3 Explain The Life Cycle Of Financial Plans, Their Role In Achieving Your Financial Goals, How To Deal
With Special Planning Concerns, And The Use Of Professional Financial Planners.
Exhibit 1.7 Can Help Focus The Attention On How Goals Differ Between The Various Stages Of Life.
Section 1-3b Lists Various Decisions That You Will Have To Make Over Your Life. The Section 1-3c
Addresses Special Planning Concerns. Worksheet 1.2 Focuses On The Financial Benefit To The Family Of
The Second Income. If The Second Income Is From A Minimum Wage Job, It May Not Be AGood
Financial Decision. Of Course Having A Job, Even A Minimum Wage Job, May Give The PersonPsychic
Income That Will Override The Financial Impact.
While Perhaps Off Topic, I Recall A High School Science Teacher Who Was A Smoker. He Walked
Through The Amount Of Money He Spent On Purchasing Tobacco Products. That Computation Had A
,4|Page
Lot To Do With My Decision To Not Smoke. How This Relates To The Course Is That This Is AnIllustration
Of How The Financial Impact Of A Decision Can Drive The Decision.
LG4 Examine The Economic Environment’s Influence On Personal Financial Planning.
For Older Folks, The Financial Crisis Of 2008-2009 Is Fresh In Our Memory. To The Student Of 2021,That
Crisis Is More Of History Than Life. If You Can Share A War Story On How You Were Personally
Impacted, It Will Help Bring The Impact Of The World Economy On Financial Plans To Life. The Book
Speaks How To Manage This Type Of Crisis, But You Had To Go Through It To Really Understand The
Impact It Had.
The Value Of Professional Advice Is Greatly Understated. If By Talking To A Professional You Can Prevent
Making A Mistake -- That Can Be Of A Great Value. Section 1-3e Speaks To The Use Of Professional
Financial Planners. Exhibit 1.9 Lists Out The Various Certifications That Planners Have.
Economic Or Business Cycles Are Real. Perhaps The Most Useful Thing About The Cycles Is The
Knowledge That If Things Are Bad, You Know They Will Get Better. Of Course, When Life Is Good, You
Know That The Bad Cycle Will Come Around Again. Thus, Financial Planning Requires Saving InThe Good
Times For The Bad Times. See The ―Test Yourself‖ Question 1-17 For A Short Discussion Of Business
Cycles.
The Power Of Compounding Is Rarely Understood. Exhibit 1.8 Shows How The Amount $10,000Will
Grow Over Time. The Longer The Investment Stays Invested, The Greater The Amount – The Power
Of Compound Interest.
LG5 Evaluate The Impact Of Age, Education, And Geographic Location On Personal Income.
Exhibit 1.12 Says It All.
LG6 Understand The Importance Of Career Choices And Their Relationship To PersonalFinancial Planning.
Exhibit 1.13 Shows That The Choice Of A College Major Has A Financial Impact. Of Course MoneyCannot
Buy Happiness, But Having A Bit Helps. If You Really Want To Be An Elementary School Teacher, You
Must Recognize That You Will Not Have As Much Wealth As A Lawyer Or Financial Analyst.
The Summary Of The Learning Goals At The End Of The Chapter Should Aid The Student In Reviewing
The Chapter When Exam Time Comes. It Will Be Useful To Point Out To The Student How To Use This
Material.
Link To Solutions To Financial Planning Exercises
Pre-Tests
