SOLUTION MANUAL
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Personal Finance, 14th Edition
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By E. Thomas Garman, Chapter 1 - 17
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,TABLE OF CONTENTS t t t
Part I: FINANCIAL PLANNING.
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1. Understanding Personal Finance.
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2. Career Planning.
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3. Financial Statements, Goals, and Budgets.
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Part II: MONEY MANAGEMENT.
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4. Managing Income Taxes.
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5. Managing Checking and Savings Accounts.
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6. Building and Maintaining Good Credit.
t t t t t
7. Credit Cards and Consumer Loans.
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8. Vehicles and Other Major Purchases.
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9. Obtaining Affordable Housing.
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Part III: INCOME AND ASSET PROTECTION.
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10. Managing Property and Liability Risk.
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11. Planning for Health Care Expenses.
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12. Life Insurance Planning.
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Part IV: INVESTMENTS.
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13. Investment Fundamentals.
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,14. Investing in Stocks and Bonds.
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15. Mutual and Exchange-Traded Funds.
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16. Real Estate and High-Risk Investments.
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17. Retirement and Estate Planning.
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SolutionandAnswerGuide t t t
GARMAN/FOX, PERSONAL FINANCE 14E, CHAPTER 1: THINKING LIKE A FINANCIAL PLANNER
T T T T T T T T T T
TABLE OF CONTENTS T T
Answers to Chapter Concept Checks.............................................................................................. 2
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What Do You Recommend Now? ................................................................................................... 4
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Let’s Talk About It ........................................................................................................................................................... 5
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Do the Math .................................................................................................................................... 6
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Financial Planning Cases ................................................................................................................ 8
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Extended Learning ....................................................................................................................... 10
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, ANSWERS TO CHAPTER CONCEPT CHECKS T T T T
LO1.1 Recognize the keys to achieving financial success.
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1. Explain the five steps in the financial planning process.
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Answer: There are five fundamental steps to the personal financial planning process: (1) evaluate your
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financial health to your education and career choice; (2) define your financial goals; (3) develop a plan of
t t t t t t t t t t t t t t t t t t
action to achieve your goals; (4) implement spending and saving plans to monitor and control
t t t t t t t t t t t t t t t
progress toward your goals; and (5) review your financial progress and make changes as appropriate.
t t t t t t t t t t t t t t t
2. Distinguish among financial success, financial security, and financial happiness. t t t t t t t t
Answer: Financial success is the achievement of financial aspirations that are desired, planned, or
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attempted. Success is defined by the individual or family that seeks it. Financial success may be defined
t t t t t t t t t t t t t t t t t
as being able to live according to one’s standard of living. Financial security is that comfortable
t t t t t t t t t t t t t t t t
feeling that your financial resources will be adequate to fulfill any needs you have as well as your wants.
t t t t t t t t t t t t t t t t t t t
Financial happiness is the experience you have when you are satisfied with money matters. People
t t t t t t t t t t t t t t t
who are happy about their finances will see a spillover into positive feelings about life in general.
t t t t t t t t t t t t t t t t t
3. Summarize what you will accomplish studying personal finance. t t t t t t t
Answer: Several things can be accomplished by studying personal finance. Recognize how to manage
t t t t t t t t t t t t t
unexpected and expected financial events. Pay as little as possible in income taxes. Understand how to
t t t t t t t t t t t t t t t t
effectively comparison shop for vehicles and homes. Protect what we own. Invest wisely. Accumulate and
t t t t t t t t t t t t t t t
protect the wealth that we may choose to spend during our non-working years (e.g., retirement) or donate.
t t t t t t t t t t t t t t t t t
4. What are the building blocks to achieving financial success?
t t t t t t t t
Answer: The building blocks for achieving financial success include a foundation of regular income
t t t t t t t t t t t t t
that provides the means to support your lifestyle and save for desired goals in the future. The
t t t t t t t t t t t t t t t t t
foundation supports a base of various banking accounts, insurance protection, and employee
t t t t t t t t t t t t
benefits. Then we can establish goals, a recordkeeping system, a budget, and an emergency savings
t t t t t t t t t t t t t t t
fund. We will also manage various expenses such as housing, transportation, insurance, and the
t t t t t t t t t t t t t t
payment of taxes. We will also need to handle credit, savings, and educational costs. Finally, we invest
t t t t t t t t t t t t t t t t t
in various investment alternatives such as mutual funds, stocks, and bonds, often for retirement. As a
t t t t t t t t t t t t t t t t
result of all these building blocks, we are more apt to have a financially successful life.
t t t t t t t t t t t t t t t t
LO1.2 Understand how the economy affects your personal financial success.
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1. Summarize the phases of the business cycle. t t t t t t
Answer: The business cycle entails a wavelike pattern of rising and falling economic activity as
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measured by economic indicators like unemployment rates or the gross domestic product. The phases
t t t t t t t t t t t t t t
of the business cycle include expansion (preferred stage—production is high, unemployment low,
t t t t t t t t t t t t
interest rates low or falling, stock market and consumer demand high), peak, contraction, downturn,
t t t t t t t t t t t t t t
trough, and recovery.
t t t
t
Personal Finance, 14th Edition
t t t
By E. Thomas Garman, Chapter 1 - 17
t t t t t t t
,TABLE OF CONTENTS t t t
Part I: FINANCIAL PLANNING.
t t t
1. Understanding Personal Finance.
t t t
2. Career Planning.
t t
3. Financial Statements, Goals, and Budgets.
t t t t t
Part II: MONEY MANAGEMENT.
t t t
4. Managing Income Taxes.
t t t
5. Managing Checking and Savings Accounts.
t t t t t
6. Building and Maintaining Good Credit.
t t t t t
7. Credit Cards and Consumer Loans.
t t t t t
8. Vehicles and Other Major Purchases.
t t t t t
9. Obtaining Affordable Housing.
t t t
Part III: INCOME AND ASSET PROTECTION.
t t t t t
10. Managing Property and Liability Risk.
t t t t t
11. Planning for Health Care Expenses.
t t t t t
12. Life Insurance Planning.
t t t
Part IV: INVESTMENTS.
t t
13. Investment Fundamentals.
t t
,14. Investing in Stocks and Bonds.
t t t t t
15. Mutual and Exchange-Traded Funds.
t t t t
16. Real Estate and High-Risk Investments.
t t t t t
17. Retirement and Estate Planning.
t t t t
SolutionandAnswerGuide t t t
GARMAN/FOX, PERSONAL FINANCE 14E, CHAPTER 1: THINKING LIKE A FINANCIAL PLANNER
T T T T T T T T T T
TABLE OF CONTENTS T T
Answers to Chapter Concept Checks.............................................................................................. 2
t t t t
What Do You Recommend Now? ................................................................................................... 4
t t t t
Let’s Talk About It ........................................................................................................................................................... 5
t t t
Do the Math .................................................................................................................................... 6
t t
Financial Planning Cases ................................................................................................................ 8
t t
Extended Learning ....................................................................................................................... 10
t
, ANSWERS TO CHAPTER CONCEPT CHECKS T T T T
LO1.1 Recognize the keys to achieving financial success.
t t t t t t t
1. Explain the five steps in the financial planning process.
t t t t t t t t
Answer: There are five fundamental steps to the personal financial planning process: (1) evaluate your
t t t t t t t t t t t t t t
financial health to your education and career choice; (2) define your financial goals; (3) develop a plan of
t t t t t t t t t t t t t t t t t t
action to achieve your goals; (4) implement spending and saving plans to monitor and control
t t t t t t t t t t t t t t t
progress toward your goals; and (5) review your financial progress and make changes as appropriate.
t t t t t t t t t t t t t t t
2. Distinguish among financial success, financial security, and financial happiness. t t t t t t t t
Answer: Financial success is the achievement of financial aspirations that are desired, planned, or
t t t t t t t t t t t t t
attempted. Success is defined by the individual or family that seeks it. Financial success may be defined
t t t t t t t t t t t t t t t t t
as being able to live according to one’s standard of living. Financial security is that comfortable
t t t t t t t t t t t t t t t t
feeling that your financial resources will be adequate to fulfill any needs you have as well as your wants.
t t t t t t t t t t t t t t t t t t t
Financial happiness is the experience you have when you are satisfied with money matters. People
t t t t t t t t t t t t t t t
who are happy about their finances will see a spillover into positive feelings about life in general.
t t t t t t t t t t t t t t t t t
3. Summarize what you will accomplish studying personal finance. t t t t t t t
Answer: Several things can be accomplished by studying personal finance. Recognize how to manage
t t t t t t t t t t t t t
unexpected and expected financial events. Pay as little as possible in income taxes. Understand how to
t t t t t t t t t t t t t t t t
effectively comparison shop for vehicles and homes. Protect what we own. Invest wisely. Accumulate and
t t t t t t t t t t t t t t t
protect the wealth that we may choose to spend during our non-working years (e.g., retirement) or donate.
t t t t t t t t t t t t t t t t t
4. What are the building blocks to achieving financial success?
t t t t t t t t
Answer: The building blocks for achieving financial success include a foundation of regular income
t t t t t t t t t t t t t
that provides the means to support your lifestyle and save for desired goals in the future. The
t t t t t t t t t t t t t t t t t
foundation supports a base of various banking accounts, insurance protection, and employee
t t t t t t t t t t t t
benefits. Then we can establish goals, a recordkeeping system, a budget, and an emergency savings
t t t t t t t t t t t t t t t
fund. We will also manage various expenses such as housing, transportation, insurance, and the
t t t t t t t t t t t t t t
payment of taxes. We will also need to handle credit, savings, and educational costs. Finally, we invest
t t t t t t t t t t t t t t t t t
in various investment alternatives such as mutual funds, stocks, and bonds, often for retirement. As a
t t t t t t t t t t t t t t t t
result of all these building blocks, we are more apt to have a financially successful life.
t t t t t t t t t t t t t t t t
LO1.2 Understand how the economy affects your personal financial success.
t t t t t t t t t
1. Summarize the phases of the business cycle. t t t t t t
Answer: The business cycle entails a wavelike pattern of rising and falling economic activity as
t t t t t t t t t t t t t t
measured by economic indicators like unemployment rates or the gross domestic product. The phases
t t t t t t t t t t t t t t
of the business cycle include expansion (preferred stage—production is high, unemployment low,
t t t t t t t t t t t t
interest rates low or falling, stock market and consumer demand high), peak, contraction, downturn,
t t t t t t t t t t t t t t
trough, and recovery.
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