Solution Manual for Personal Financial Planning
15th Edition by Randy Billingsley, Lawrence J.
Gitman, Michael D. Joehnk
,SOLUTION MANUAL FOR
Personal Financial Planning 15th Edition by Randy Billingsley,
Lawrence J. Gitman, Michael D. Joehnk
Understanding the
Financial Planning Process
Chapter 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
financialplanners 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 your
finances.
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 property
you 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.
,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
theFinancial 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 other
plan]. Recording the goal and then reviewing three months later will help you to keep focus on
the 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
, lot to do with my decision to not smoke. How this relates to the course is that this is an
illustration 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
bookspeaks 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 in
the 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 money
cannot 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
15th Edition by Randy Billingsley, Lawrence J.
Gitman, Michael D. Joehnk
,SOLUTION MANUAL FOR
Personal Financial Planning 15th Edition by Randy Billingsley,
Lawrence J. Gitman, Michael D. Joehnk
Understanding the
Financial Planning Process
Chapter 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
financialplanners 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 your
finances.
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 property
you 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.
,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
theFinancial 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 other
plan]. Recording the goal and then reviewing three months later will help you to keep focus on
the 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
, lot to do with my decision to not smoke. How this relates to the course is that this is an
illustration 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
bookspeaks 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 in
the 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 money
cannot 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
