Solution Manual for Personal Financial Planning 15th Edition by Randy Billingsley, Lawrence J. Gitman, Michael D. Joehnk

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Personal Financial Planning 15th Edition by Randy oo oo oo oo oo oo




Billingsley, Lawrence J. Gitman, Michael D. Joehnk
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How Will This Affect Me? ss ss ss ss



The heart of financial planning is making sure your values line up with how you spend
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and save. That means knowing where you are financially and planning on how to get where
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you want to be in the future no matter what life throws at you. For example, how should your
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plan handle the projection that Social Security costs may exceed revenues by 2035? And what
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if the government decides to raise tax rates to help cover the federal deficit? An informed
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financial 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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financial planners 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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LEARNINGGOALS
LG1 Identify the benefits of using personal financial planning techniques to manage your
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finances.
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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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property you own less the amount that you owe to others.
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ACTIVITY: Ask the studentsto assume that theyhave just inherited $100,000. What will you
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do 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
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the entire class can reflect on the answers. Hopefully, at least a few will mention
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investing even if only
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$10,000 of the amount. Use their answers to discuss taking care of current needs
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versus future needs.
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Focus ontheir propensityto consume and its impact on accumulating wealth. Point out the
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Financial 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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to help 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 generaland president, isquoted assaying ―Plans are useless;Planning is
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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 ifthe assumptions are realistic. Yes,
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the answer is in the exhibit, but manywill not have read chapter at this point. For your
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use, the assumptions are:
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Assumption 1: Saving a few thousand dollars a year should provide enough to fund s s s s ss s s ss ss ss s s s s s s ss ss s s



my child‘s college Education.
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Assumption 2: An emergency fund lasting 3 months should be adequate. ss ss oo ss ss ss s s ss ss ss



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



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 PersonalFinancialGoals. There is power in writing down goals [and most anyother
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plan]. Recording the goal and then reviewing three months later will help you to keep
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focus on the goal.
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LG3 Explain the life cycle of financial plans, their role in achieving your
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financial goals, how to deal with special planning concerns, and the use of professional
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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
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section 1- 3c addresses Special Planning Concerns. Worksheet 1.2 focuses on the financial
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benefit to the family of the second income. If the second income is from a minimum wage
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job, it may not be a goodfinancialdecision. Ofcourse having a job, even a minimumwage job,
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may give the person psychic 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.
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computation had a
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, lot to do with my decision to not smoke. Howthis relates to the course is that this is an
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illustration 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
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of 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 book speaks 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 financialplanners. Exhibit 1.9 lists out the various certifications that planners
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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.
ss Of course, when life is
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good, you know that the bad cycle willcome around again. Thus, financialplanning
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requires saving in thegood timesfor the bad times. Seethe ―Test Yourself‖ question 1-17
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for ashort discussion of business cycles.
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The power of compounding is rarely understood. Exhibit 1.8 shows how the amount $10,000
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will grow over time. The longer the investment stays invested, the greater the amount – the
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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. ss ss ss ss




LG6 Understand the importance of careerchoices and theirrelationship to personal
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financial planning.
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Exhibit 1.13 shows that the choice ofa college major has a financial impact. Of course money
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cannot buy happiness, but having a bit helps. If you really want to be an elementary school
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teacher, you must recognize that you will not have as much wealth as a lawyer or financial
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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
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the student how to use this material.
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Link to Solutions to FinancialPlanning Exercises
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Pre-tests