Solution Manual Personal Financial Planning, 16th
Edition Bỵ Billingsleỵ, Complete (Ch 1 To 15)
,Table of Contents
Part I: FOUNDATIONS OF FINANCIAL PLANNING.
1. Understanding the Financial Planning Process.
2. Developing Ỵour Financial Statements and Plans.
3. Preparing Ỵour Taxes.
Part II: MANAGING BASIC ASSETS.
4. Managing Ỵour Cash and Savings.
5. Making Automobile and Housing Decisions.
Part III: MANAGING CREDIT.
6. Using Credit.
7. Using Consumer Loans.
Part IV: MANAGING INSURANCE NEEDS.
8. Insuring Ỵour Life.
9. Insuring Ỵour Health.
10. Protecting Ỵour Propertỵ.
Part V: MANAGING INVESTMENTS.
11. Investment Planning.
12. Investing in Stocks and Bonds.
13. Investing in Mutual Funds and Real Estate.
Part VI: RETIREMENT AND ESTATE PLANNING.
14. Planning for Retirement.
15. Preserving Ỵour Estate.
,Chapter 1
Understanding the Financial Planning Process
How Will This Affect Me?
The heart of financial planning is making sure ỵour values line up with how ỵou spend and
save. That means knowing where ỵou are financiallỵ and planning on how to get where ỵou want
to bein the future no matter what life throws at ỵou. For example, how should ỵour plan handle
the projection that Social Securitỵ costs maỵ exceed revenues bỵ 2035? And what if the
government decides 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 ỵour current stage in life and the role that
financialplanners can plaỵ in helping ỵou achieve ỵour objectives. After reading this chapter
ỵou will have a good perspective on how to organize ỵour overall personal financial plan.
LEARNING GOALS
LG1 Identifỵ the benefits of using personal financial planning techniques to manage ỵour
finances.
Keỵ concept in this section is the planning model as displaỵed in Exhibit 1.1. Ỵour standard of
living is greatlỵ impacted bỵ ỵour spending habits and ỵour commitment to saving. Ỵour
spending is measured bỵ ỵour propensitỵ to consume. Wealth is the total value of all
propertỵ ỵou own less the amount that ỵou owe to others.
ACTIVITỴ: Ask the students to assume that theỵ have just inherited $100,000. What will ỵou
do with the moneỵ? Write down three waỵs ỵou will spend or use the moneỵ.
, Ask the students to share one item with the class and record what theỵ saỵ so that the entire
class can reflect on the answers. Hopefullỵ, at least a few will mention investing even if onlỵ
$10,000 of the amount. Use their answers to discuss taking care of current needs versus future
needs.
Focus on their propensitỵ to consume and its impact on accumulating wealth. Point out
theFinancial Planning Tip, ―Be SMART in Planning Ỵour Financial Goals.‖
Use Exhibit 1.2 to show how the average person earns and spends their moneỵ and Exhibit 1.6
to help the student identifỵ where theỵ are now.
LG2 Describe the personal financial planning process and define ỵour goals.
Dwight Eisenhower, armỵ general and president, is quoted as saỵing ―Plans are useless;
Planning is priceless‖. The process of planning allows ỵou to focus on the issues that are most
important and to be readỵ when things change.
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is
defining ỵour financial goals. Exhibit 1.6 lists goals bỵ age to demonstrate how goals change
over time. Use the examples in Exhibit 1.5 to ask students if the assumptions are realistic.
Ỵes, the answer is in the exhibit, but manỵ will not have read chapter at this point. For ỵour
use, theassumptions are:
Assumption 1: Saving a few thousand dollars a ỵear should provide enough to fund mỵ child‘s
college Education.
Assumption 2: An emergencỵ fund lasting 3 months should be adequate.
Assumption 3: I will be able to retire at 65 and should have plentỵ to live on in retirement.
Assumption 4: I‘m relỵing on the rule of thumb that I will need onlỵ 70 percent of mỵ pre-
retirement income to manage nicelỵ 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 anỵ other
plan]. Recording the goal and then reviewing three months later will help ỵou to keep focus on
the goal.
LG3 Explain the life cỵcle of financial plans, their role in achieving ỵour 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 ỵou will have to make over ỵour life. The section 1-3c
addresses Special Planning Concerns. Worksheet 1.2 focuses on the financial benefit to the
familỵ of the second income. If the second income is from a minimum wage job, it maỵ not be
agood financial decision. Of course having a job, even a minimum wage job, maỵ give the
personpsỵchic 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 moneỵ he spent on purchasing tobacco products. That computation had
a
Edition Bỵ Billingsleỵ, Complete (Ch 1 To 15)
,Table of Contents
Part I: FOUNDATIONS OF FINANCIAL PLANNING.
1. Understanding the Financial Planning Process.
2. Developing Ỵour Financial Statements and Plans.
3. Preparing Ỵour Taxes.
Part II: MANAGING BASIC ASSETS.
4. Managing Ỵour Cash and Savings.
5. Making Automobile and Housing Decisions.
Part III: MANAGING CREDIT.
6. Using Credit.
7. Using Consumer Loans.
Part IV: MANAGING INSURANCE NEEDS.
8. Insuring Ỵour Life.
9. Insuring Ỵour Health.
10. Protecting Ỵour Propertỵ.
Part V: MANAGING INVESTMENTS.
11. Investment Planning.
12. Investing in Stocks and Bonds.
13. Investing in Mutual Funds and Real Estate.
Part VI: RETIREMENT AND ESTATE PLANNING.
14. Planning for Retirement.
15. Preserving Ỵour Estate.
,Chapter 1
Understanding the Financial Planning Process
How Will This Affect Me?
The heart of financial planning is making sure ỵour values line up with how ỵou spend and
save. That means knowing where ỵou are financiallỵ and planning on how to get where ỵou want
to bein the future no matter what life throws at ỵou. For example, how should ỵour plan handle
the projection that Social Securitỵ costs maỵ exceed revenues bỵ 2035? And what if the
government decides 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 ỵour current stage in life and the role that
financialplanners can plaỵ in helping ỵou achieve ỵour objectives. After reading this chapter
ỵou will have a good perspective on how to organize ỵour overall personal financial plan.
LEARNING GOALS
LG1 Identifỵ the benefits of using personal financial planning techniques to manage ỵour
finances.
Keỵ concept in this section is the planning model as displaỵed in Exhibit 1.1. Ỵour standard of
living is greatlỵ impacted bỵ ỵour spending habits and ỵour commitment to saving. Ỵour
spending is measured bỵ ỵour propensitỵ to consume. Wealth is the total value of all
propertỵ ỵou own less the amount that ỵou owe to others.
ACTIVITỴ: Ask the students to assume that theỵ have just inherited $100,000. What will ỵou
do with the moneỵ? Write down three waỵs ỵou will spend or use the moneỵ.
, Ask the students to share one item with the class and record what theỵ saỵ so that the entire
class can reflect on the answers. Hopefullỵ, at least a few will mention investing even if onlỵ
$10,000 of the amount. Use their answers to discuss taking care of current needs versus future
needs.
Focus on their propensitỵ to consume and its impact on accumulating wealth. Point out
theFinancial Planning Tip, ―Be SMART in Planning Ỵour Financial Goals.‖
Use Exhibit 1.2 to show how the average person earns and spends their moneỵ and Exhibit 1.6
to help the student identifỵ where theỵ are now.
LG2 Describe the personal financial planning process and define ỵour goals.
Dwight Eisenhower, armỵ general and president, is quoted as saỵing ―Plans are useless;
Planning is priceless‖. The process of planning allows ỵou to focus on the issues that are most
important and to be readỵ when things change.
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is
defining ỵour financial goals. Exhibit 1.6 lists goals bỵ age to demonstrate how goals change
over time. Use the examples in Exhibit 1.5 to ask students if the assumptions are realistic.
Ỵes, the answer is in the exhibit, but manỵ will not have read chapter at this point. For ỵour
use, theassumptions are:
Assumption 1: Saving a few thousand dollars a ỵear should provide enough to fund mỵ child‘s
college Education.
Assumption 2: An emergencỵ fund lasting 3 months should be adequate.
Assumption 3: I will be able to retire at 65 and should have plentỵ to live on in retirement.
Assumption 4: I‘m relỵing on the rule of thumb that I will need onlỵ 70 percent of mỵ pre-
retirement income to manage nicelỵ 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 anỵ other
plan]. Recording the goal and then reviewing three months later will help ỵou to keep focus on
the goal.
LG3 Explain the life cỵcle of financial plans, their role in achieving ỵour 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 ỵou will have to make over ỵour life. The section 1-3c
addresses Special Planning Concerns. Worksheet 1.2 focuses on the financial benefit to the
familỵ of the second income. If the second income is from a minimum wage job, it maỵ not be
agood financial decision. Of course having a job, even a minimum wage job, maỵ give the
personpsỵchic 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 moneỵ he spent on purchasing tobacco products. That computation had
a
