Instructor's Solution Manual: Personal Financial Planning (15th Edition)

Solution Manual for Personal Financial
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Planning15th Edition by Randy Billingsley, Lawrence
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J. Gitman,MichaelD.Joehnk
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,SOLUTION MANUAL FOR x x




Personal Financial Planning 15th Edition by Randy Billingsley, x x x x x x x




Lawrence J. Gitman, Michael D. Joehnk
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Understanding the Financial x x




PlanningProcessChapter 1
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How Will This Affect Me?
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The heart of financial planning is making sure your values line up with how you spend and
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save.That means knowing where you are financially and planning on how to get where you want
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to bein the future no matter what life throws at you. For example, how should your plan handle
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the projection that Social Security costs may exceed revenues by 2035? And what if the
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governmentdecides to raise tax rates to help cover the federal deficit? An informed financial
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plan should reflect such uncertainties and more.
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This chapter overviews the financial planning process and explains its context. Topics include
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how financial plans change to accommodate your current stage in life and the role that
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financialplanners can play in helping you achieve your objectives. After reading this chapter
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you will have a good perspective on how to organize your overall personal financial plan.
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LEARNING GOALS x




LG1 Identify the benefits of using personal financial planning techniques to manage
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yourfinances.
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Key concept in this section is the planning model as displayed in Exhibit 1.1. Your standard of
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living is greatly impacted by your spending habits and your commitment to saving. Your
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spending is measured by your propensity to consume. Wealth is the total value of all
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propertyyou own less the amount that you owe to others.
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ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will
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youdo with the money? Write down three ways you will spend or use the money.
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,Ask the students to share one item with the class and record what they say so that the entire
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class can reflect on the answers. Hopefully, at least a few will mention investing even if only
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$10,000 of the amount. Use their answers to discuss taking care of current needs versus future
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needs.
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Focus on their propensity to consume and its impact on accumulating wealth. Point out
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theFinancial Planning Tip, ―Be SMART in Planning Your Financial Goals.‖
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Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit 1.6
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tohelp the student identify where they are now.
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LG2 Describe the personal financial planning process and define your goals.
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Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless;
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Planning is priceless‖. The process of planning allows you to focus on the issues that are most
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important and to be ready when things change.
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Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is
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defining your financial goals. Exhibit 1.6 lists goals by age to demonstrate how goals change
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over time. Use the examples in Exhibit 1.5 to ask students if the assumptions are realistic.
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Yes,the answer is in the exhibit, but many will not have read chapter at this point. For your
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use, theassumptions are:
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Assumption 1: Saving a few thousand dollars a year should provide enough to fund my x x x x x x x x x x x x x x



child‘scollege Education.
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Assumption 2: An emergency fund lasting 3 months should be adequate. x x x x x x x x x x



Assumption 3: I will be able to retire at 65 and should have plenty to live on in x x x x x x x x x x x x x x x x x



retirement. Assumption 4: I‘m relying on the rule of thumb that I will need only 70
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percent of my pre-retirement income to manage nicely in retirement.
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There are several worksheets in the book. Worksheet 1.1 gives the student a format to write
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down their Personal Financial Goals. There is power in writing down goals [and most any
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otherplan]. Recording the goal and then reviewing three months later will help you to keep
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focus onthe goal.
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LG3 Explain the life cycle of financial plans, their role in achieving your financial goals, how
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to deal with special planning concerns, and the use of professional financial planners.
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Exhibit 1.7 can help focus the attention on how goals differ between the various stages of life.
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Section 1-3b lists various decisions that you will have to make over your life. The section 1-3c
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addresses Special Planning Concerns. Worksheet 1.2 focuses on the financial benefit to the
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family of the second income. If the second income is from a minimum wage job, it may not be
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agood financial decision. Of course having a job, even a minimum wage job, may give the
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personpsychic income that will override the financial impact.
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While perhaps off topic, I recall a high school science teacher who was a smoker. He walked
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through the amount of money he spent on purchasing tobacco products. That computation
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had a
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, lot to do with my decision to not smoke. How this relates to the course is that this is
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anillustration of how the financial impact of a decision can drive the decision.
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LG4 Examine the economic environment’s influence on personal financial planning.
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For older folks, the financial crisis of 2008-2009 is fresh in our memory. To the student of
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2021,that crisis is more of history than life. If you can share a war story on how you were
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personally impacted, it will help bring the impact of the world economy on financial plans to
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life. The bookspeaks how to manage this type of crisis, but you had to go through it to really
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understand the impact it had.
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The value of professional advice is greatly understated. If by talking to a professional you can
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prevent making a mistake -- that can be of a great value. Section 1-3e speaks to the use of
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professional financial planners. Exhibit 1.9 lists out the various certifications that planners have.
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Economic or business cycles are real. Perhaps the most useful thing about the cycles is the
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knowledge that if things are bad, you know they will get better. Of course, when life is good,
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you know that the bad cycle will come around again. Thus, financial planning requires saving
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int he good times for the bad times. See the ―Test Yourself‖ question 1-17 for a short
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discussion of business cycles.
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The power of compounding is rarely understood. Exhibit 1.8 shows how the amount
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$10,000will grow over time. The longer the investment stays invested, the greater the
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amount – the power of compound interest.
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LG5 Evaluate the impact of age, education, and geographic location on personal income.
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Exhibit 1.12 says it all. x x x x




LG6 Understand the importance of career choices and their relationship to personalfinancial
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planning.
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Exhibit 1.13 shows that the choice of a college major has a financial impact. Of course
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moneycannot buy happiness, but having a bit helps. If you really want to be an elementary
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school teacher, you must recognize that you will not have as much wealth as a lawyer or
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financial analyst.
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The summary of the learning goals at the end of the chapter should aid the student in
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reviewing the chapter when exam time comes. It will be useful to point out to the student
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how to use this material.
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Link to Solutions to Financial Planning Exercises
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Pre-tests