Solution Manual for Personal Financial Planning 15
m m m m m mm
th Edition by Randy Billingsley, Lawrence J. Gitma
m m m m m m mm
n, Michael D. Joehnk
m m m
,SOLUTION MANUAL FOR m m
Personal Financial Planning 15th Edition by Randy
m m m m m m
Billingsley, Lawrence J. Gitman, Michael D. Joehnk
m m m m m m m
Understanding the Financi m mm
al Planning Process Chapte
m m m
r1 m
Howm Willm Thism Affectm Me?
Themheart mof mfinancialmplanningmismmakingmsuremyourmvalues mlinemupmwithmhowmyoumspend mand msa
ve.mThat mmeansmknowingmwheremyoumaremfinanciallymand mplanningmonmhowmtomget mwheremyoumwan
t mtombeminmthemfuturemnommattermwhat mlifemthrowsmat myou.mFormexample,mhow mshould myourmplanmha
ndlemthemprojectionmthat mSocialmSecuritymcostsmmaymexceed mrevenuesmbym2035?mAnd mwhat mif mthem
government mdecidesmtomraisemtaxmratesmtomhelpmcovermthemfederalmdeficit?mAnminformed mfinancialm
planmshould mreflect msuchmuncertaintiesmand mmore.
Thismchaptermoverviewsmthemfinancialmplanningmprocessmand mexplainsm itsmcontext.mTopicsm include
mhow mfinancialmplansmchangemtomaccommodatemyourmcurrent mstageminmlifemand mthemrolemthat mfinanci
almplannersmcanmplayminmhelpingmyoumachievemyourmobjectives.mAftermreadingmthismchaptermyoumwi
llmhavemamgood mperspectivemonmhowmtomorganizemyourmoverallmpersonalmfinancial mplan.
LEARNING GOALS m
LG1mIdentifymthembenefitsmof musingmpersonalmfinancialmplanningmtechniquesmtommanagemyou
rmfinances.
Keymconcept minmthismsectionmismthemplanningmmodelmasmdisplayed minmExhibit m1.1.mYourmstandard mo
f mlivingmismgreatlymimpacted mbymyourmspendingmhabitsmandmyourmcommitmentmtomsaving. mYourmspe
ndingmismmeasured mbymyourmpropensitymtomconsume.mWealthmismthemtotalmvaluemof mallmpropertym
youmownmlessmthemamount mthat myoumowemtomothers.
ACTIVITY:m Askmthemstudentsmtomassumemthat mtheymhavemjust minherited m$100,000.mWhat mwillmyo
umdomwithmthemmoney?mWritemdownmthreemwaysmyoumwillmspend mormusemthemmoney.
,Askmthemstudentsmtomsharemonemitemmwithmthemclassmand mrecord mwhat mtheymsaymsomthat mthementiremcl
assmcanmreflect monmthemanswers.mHopefully,m at mleast mamfew mwillm mentionminvestingmevenm if monlym$
10,000mof mthemamount.m Usemtheirmanswersmtomdiscussmtakingmcaremof mcurrent mneedsmversusmfuturem
needs.
Focusmonmtheirmpropensitymtomconsumemand mitsmimpact monmaccumulatingmwealth.mPoint mout mthemFin
ancialmPlanningmTip,m―BemSMARTminmPlanningmYourmFinancialmGoals.‖
UsemExhibit m1.2mtomshowmhowmthemaveragempersonmearnsmand mspendsmtheirmmoneymand mExhibit m1.6
mtomhelpmthemstudent midentifymwheremtheymaremnow.
LG2mDescribemthempersonalmfinancialmplanningmprocessmandmdefinemyourmgoals.
Dwight mEisenhower,marmymgeneralmand mpresident,mismquoted masmsayingm―Plansmaremuseless;mPlannin
gmismpriceless‖.mThemprocessmof mplanningm allowsmyou mtomfocusmonmthemissuesmthat marem most mimport
ant mand mtombemreadymwhenmthingsmchange.
Exhibit m1.3mlistsmthemSixmStepmFinancialmPlanningmProcess.m Themfirst mand mmost mimportant mismdefi
ningmyourmfinancialmgoals.mExhibit m1.6mlistsmgoalsmbymagemtomdemonstratemhowmgoalsmchangemove
rmtime.mUsemthemexamplesminmExhibit m1.5mtomaskmstudentsmif mthemassumptionsmaremrealistic. mYes,mt
hemanswermisminmthemexhibit,mbut mmanymwillmnot mhavemread mchaptermat mthismpoint.mFormyourmuse,mth
emassumptionsmare:
Assumptionm1:mSavingmamfew mthousand mdollarsma myearm should mprovidemenoughmtomfund mmymchil
d‘smcollegemEducation.
Assumptionm2:mAnmemergencymfund mlastingm3mmonthsmshould mbemadequate.
Assumptionm3:mI mwillmbemablemtomretiremat m65mand mshould mhavemplentymtomlivemonminmretirem
ent.mAssumptionm4:mI‘mmrelyingmonmthemrulemof mthumbmthat mI mwillmneed monlym70mpercent mof m
mympre-mretirement mincomemtommanagemnicelym inmretirement.
Theremaremseveralmworksheetsminmthembook.mWorksheet m1.1mgivesmthemstudent mamformat mtomwritem
downmtheirmPersonalmFinancialmGoals.mTheremismpowerm inmwritingmdownmgoals m[and mmost manymoth
ermplan].mRecordingmthemgoalmand mthenmreviewingmthreemmonthsmlatermwillmhelpmyoumtomkeep mfocu
smonmthemgoal.
LG3mExplainmthemlifemcyclemof mfinancialmplans,mtheirmroleminmachievingmyourmfinancialmgoal
s,mhow mtomdealmwithmspecialmplanningmconcerns,mandmthemusemofmprofessionalmfinancialmplan
ners.
Exhibit m1.7mcanmhelpmfocusmthemattentionmonmhow mgoalsmdiffermbetweenmthemvariousmstagesmof mlife.
mSectionm1-3bmlistsmvariousmdecisionsmthat myoumwillmhavemtommakemovermyour mlife.m Themsectionm1-
3cmaddressesmSpecialmPlanningmConcerns.mWorksheet m1.2mfocusesmonmthemfinancialmbenefit mtomthe
mfamilymof mthemsecond mincome.mIf mthemsecond mincomemismfrommamminimummwagemjob,mit mmaymnot mb
emamgood mfinancialmdecision.mOf mcoursemhavingmamjob,mevenmamminimummwagem job,mmay mgivemthe mp
ersonmpsychicmincomemthat mwillmoverridemthemfinancialmimpact.
Whilemperhapsmoff mtopic,mI mrecall mamhigh mschoolm sciencemteachermwhomwasmam smoker. mHemwalked
mthroughmthemamount mof mmoneymhemspent monmpurchasingmtobaccomproducts.m That mcomputationmha
d ma
, lot mtomdomwithmmymdecisionmtomnot msmoke.mHow mthismrelatesmtomthemcoursemismthat mthismismanmillust
rationmof mhow mthemfinancialmimpact mof mamdecisionmcanmdrivemthemdecision.
LG4mExaminemthemeconomicmenvironment’sminfluencemonmpersonalmfinancialmplanning.
Formoldermfolks,mthemfinancialmcrisismof m2008-
2009mismfreshminmourmmemory.mTomthemstudent mof m2021,mthat mcrisismismmoremof mhistorymthanmlife.mIf
myoumcanmsharemamwarmstorymonmhow myoumwerempersonallymimpacted,mit mwillmhelpmbringmthemimpac
t mof mthemworld meconomymonmfinancialmplansmtomlife.mThembookmspeaksmhow mtommanagemthismtypemof
mcrisis,mbut myoumhad mtomgomthroughmit mtomreallymunderstand mthemimpact mit mhad.
Themvaluemof mprofessionalmadvicemismgreatlymunderstated.mIf mbymtalkingmtomamprofessionalmyoumcan
mprevent mmakingmammistakem--mthat mcanmbemof mamgreat mvalue.mSectionm1-
3emspeaksmtomthemusemof mprofessionalmfinancialmplanners.m Exhibit m1.9mlistsmout mthemvarious mcertific
ationsmthat mplannersmhave.
Economicmormbusinessmcyclesmaremreal.mPerhapsmthemmost musefulmthingm about mthemcyclesm ismthemkn
owledgemthat mif mthingsmarembad,myoumknow mtheymwillmget mbetter.m Of mcourse,mwhenmlifemismgood,my
oumknow mthat mthembad mcyclemwillmcomemaround magain.m Thus,mfinancialmplanningmrequires msavingmi
nmthemgood mtimesmformthembad mtimes.m Seemthem―Test mYourself‖ mquestionm1-
17mformamshort mdiscussionmof mbusinessmcycles.
Thempowermof mcompoundingmismrarelymunderstood.mExhibit m1.8mshowsmhowmthemamount m$10,000m
willmgrow movermtime.mThemlongermtheminvestment mstaysminvested,mthemgreatermthemamount m–
mthempowermof mcompound minterest.
LG5mEvaluatemthemimpactmof mage,meducation,mandmgeographicmlocationmonmpersonalmincome.
Exhibit m1.12msaysmit mall.
LG6mUnderstandmthemimportancemof mcareermchoicesmandmtheirmrelationshipmtompersonalmfina
ncialmplanning.
Exhibit m1.13mshowsmthat mthemchoicemof mamcollegemmajormhasmamfinancialmimpact.mOf mcoursemmoney
mcannot mbuymhappiness,mbut mhavingmambit mhelps.mIf myoumreallymwant mtombemanmelementarymschoolmt
eacher,myoummust mrecognizemthat myoumwillmnot mhavemasmmuchmwealthmasmam lawyermor mfinancialman
alyst.
Themsummarymof mthemlearningmgoalsmat mthemend mof mthemchaptermshould maid mthemstudent minmreviewi
ngmthemchaptermwhenmexammtimemcomes.mIt mwillmbe musefulmtompoint mout mtomthemstudent mhow mtomu
semthismmaterial.
LinkmtomSolutionsmtomFinancialmPlanningmExercises
Pre-tests
m m m m m mm
th Edition by Randy Billingsley, Lawrence J. Gitma
m m m m m m mm
n, Michael D. Joehnk
m m m
,SOLUTION MANUAL FOR m m
Personal Financial Planning 15th Edition by Randy
m m m m m m
Billingsley, Lawrence J. Gitman, Michael D. Joehnk
m m m m m m m
Understanding the Financi m mm
al Planning Process Chapte
m m m
r1 m
Howm Willm Thism Affectm Me?
Themheart mof mfinancialmplanningmismmakingmsuremyourmvalues mlinemupmwithmhowmyoumspend mand msa
ve.mThat mmeansmknowingmwheremyoumaremfinanciallymand mplanningmonmhowmtomget mwheremyoumwan
t mtombeminmthemfuturemnommattermwhat mlifemthrowsmat myou.mFormexample,mhow mshould myourmplanmha
ndlemthemprojectionmthat mSocialmSecuritymcostsmmaymexceed mrevenuesmbym2035?mAnd mwhat mif mthem
government mdecidesmtomraisemtaxmratesmtomhelpmcovermthemfederalmdeficit?mAnminformed mfinancialm
planmshould mreflect msuchmuncertaintiesmand mmore.
Thismchaptermoverviewsmthemfinancialmplanningmprocessmand mexplainsm itsmcontext.mTopicsm include
mhow mfinancialmplansmchangemtomaccommodatemyourmcurrent mstageminmlifemand mthemrolemthat mfinanci
almplannersmcanmplayminmhelpingmyoumachievemyourmobjectives.mAftermreadingmthismchaptermyoumwi
llmhavemamgood mperspectivemonmhowmtomorganizemyourmoverallmpersonalmfinancial mplan.
LEARNING GOALS m
LG1mIdentifymthembenefitsmof musingmpersonalmfinancialmplanningmtechniquesmtommanagemyou
rmfinances.
Keymconcept minmthismsectionmismthemplanningmmodelmasmdisplayed minmExhibit m1.1.mYourmstandard mo
f mlivingmismgreatlymimpacted mbymyourmspendingmhabitsmandmyourmcommitmentmtomsaving. mYourmspe
ndingmismmeasured mbymyourmpropensitymtomconsume.mWealthmismthemtotalmvaluemof mallmpropertym
youmownmlessmthemamount mthat myoumowemtomothers.
ACTIVITY:m Askmthemstudentsmtomassumemthat mtheymhavemjust minherited m$100,000.mWhat mwillmyo
umdomwithmthemmoney?mWritemdownmthreemwaysmyoumwillmspend mormusemthemmoney.
,Askmthemstudentsmtomsharemonemitemmwithmthemclassmand mrecord mwhat mtheymsaymsomthat mthementiremcl
assmcanmreflect monmthemanswers.mHopefully,m at mleast mamfew mwillm mentionminvestingmevenm if monlym$
10,000mof mthemamount.m Usemtheirmanswersmtomdiscussmtakingmcaremof mcurrent mneedsmversusmfuturem
needs.
Focusmonmtheirmpropensitymtomconsumemand mitsmimpact monmaccumulatingmwealth.mPoint mout mthemFin
ancialmPlanningmTip,m―BemSMARTminmPlanningmYourmFinancialmGoals.‖
UsemExhibit m1.2mtomshowmhowmthemaveragempersonmearnsmand mspendsmtheirmmoneymand mExhibit m1.6
mtomhelpmthemstudent midentifymwheremtheymaremnow.
LG2mDescribemthempersonalmfinancialmplanningmprocessmandmdefinemyourmgoals.
Dwight mEisenhower,marmymgeneralmand mpresident,mismquoted masmsayingm―Plansmaremuseless;mPlannin
gmismpriceless‖.mThemprocessmof mplanningm allowsmyou mtomfocusmonmthemissuesmthat marem most mimport
ant mand mtombemreadymwhenmthingsmchange.
Exhibit m1.3mlistsmthemSixmStepmFinancialmPlanningmProcess.m Themfirst mand mmost mimportant mismdefi
ningmyourmfinancialmgoals.mExhibit m1.6mlistsmgoalsmbymagemtomdemonstratemhowmgoalsmchangemove
rmtime.mUsemthemexamplesminmExhibit m1.5mtomaskmstudentsmif mthemassumptionsmaremrealistic. mYes,mt
hemanswermisminmthemexhibit,mbut mmanymwillmnot mhavemread mchaptermat mthismpoint.mFormyourmuse,mth
emassumptionsmare:
Assumptionm1:mSavingmamfew mthousand mdollarsma myearm should mprovidemenoughmtomfund mmymchil
d‘smcollegemEducation.
Assumptionm2:mAnmemergencymfund mlastingm3mmonthsmshould mbemadequate.
Assumptionm3:mI mwillmbemablemtomretiremat m65mand mshould mhavemplentymtomlivemonminmretirem
ent.mAssumptionm4:mI‘mmrelyingmonmthemrulemof mthumbmthat mI mwillmneed monlym70mpercent mof m
mympre-mretirement mincomemtommanagemnicelym inmretirement.
Theremaremseveralmworksheetsminmthembook.mWorksheet m1.1mgivesmthemstudent mamformat mtomwritem
downmtheirmPersonalmFinancialmGoals.mTheremismpowerm inmwritingmdownmgoals m[and mmost manymoth
ermplan].mRecordingmthemgoalmand mthenmreviewingmthreemmonthsmlatermwillmhelpmyoumtomkeep mfocu
smonmthemgoal.
LG3mExplainmthemlifemcyclemof mfinancialmplans,mtheirmroleminmachievingmyourmfinancialmgoal
s,mhow mtomdealmwithmspecialmplanningmconcerns,mandmthemusemofmprofessionalmfinancialmplan
ners.
Exhibit m1.7mcanmhelpmfocusmthemattentionmonmhow mgoalsmdiffermbetweenmthemvariousmstagesmof mlife.
mSectionm1-3bmlistsmvariousmdecisionsmthat myoumwillmhavemtommakemovermyour mlife.m Themsectionm1-
3cmaddressesmSpecialmPlanningmConcerns.mWorksheet m1.2mfocusesmonmthemfinancialmbenefit mtomthe
mfamilymof mthemsecond mincome.mIf mthemsecond mincomemismfrommamminimummwagemjob,mit mmaymnot mb
emamgood mfinancialmdecision.mOf mcoursemhavingmamjob,mevenmamminimummwagem job,mmay mgivemthe mp
ersonmpsychicmincomemthat mwillmoverridemthemfinancialmimpact.
Whilemperhapsmoff mtopic,mI mrecall mamhigh mschoolm sciencemteachermwhomwasmam smoker. mHemwalked
mthroughmthemamount mof mmoneymhemspent monmpurchasingmtobaccomproducts.m That mcomputationmha
d ma
, lot mtomdomwithmmymdecisionmtomnot msmoke.mHow mthismrelatesmtomthemcoursemismthat mthismismanmillust
rationmof mhow mthemfinancialmimpact mof mamdecisionmcanmdrivemthemdecision.
LG4mExaminemthemeconomicmenvironment’sminfluencemonmpersonalmfinancialmplanning.
Formoldermfolks,mthemfinancialmcrisismof m2008-
2009mismfreshminmourmmemory.mTomthemstudent mof m2021,mthat mcrisismismmoremof mhistorymthanmlife.mIf
myoumcanmsharemamwarmstorymonmhow myoumwerempersonallymimpacted,mit mwillmhelpmbringmthemimpac
t mof mthemworld meconomymonmfinancialmplansmtomlife.mThembookmspeaksmhow mtommanagemthismtypemof
mcrisis,mbut myoumhad mtomgomthroughmit mtomreallymunderstand mthemimpact mit mhad.
Themvaluemof mprofessionalmadvicemismgreatlymunderstated.mIf mbymtalkingmtomamprofessionalmyoumcan
mprevent mmakingmammistakem--mthat mcanmbemof mamgreat mvalue.mSectionm1-
3emspeaksmtomthemusemof mprofessionalmfinancialmplanners.m Exhibit m1.9mlistsmout mthemvarious mcertific
ationsmthat mplannersmhave.
Economicmormbusinessmcyclesmaremreal.mPerhapsmthemmost musefulmthingm about mthemcyclesm ismthemkn
owledgemthat mif mthingsmarembad,myoumknow mtheymwillmget mbetter.m Of mcourse,mwhenmlifemismgood,my
oumknow mthat mthembad mcyclemwillmcomemaround magain.m Thus,mfinancialmplanningmrequires msavingmi
nmthemgood mtimesmformthembad mtimes.m Seemthem―Test mYourself‖ mquestionm1-
17mformamshort mdiscussionmof mbusinessmcycles.
Thempowermof mcompoundingmismrarelymunderstood.mExhibit m1.8mshowsmhowmthemamount m$10,000m
willmgrow movermtime.mThemlongermtheminvestment mstaysminvested,mthemgreatermthemamount m–
mthempowermof mcompound minterest.
LG5mEvaluatemthemimpactmof mage,meducation,mandmgeographicmlocationmonmpersonalmincome.
Exhibit m1.12msaysmit mall.
LG6mUnderstandmthemimportancemof mcareermchoicesmandmtheirmrelationshipmtompersonalmfina
ncialmplanning.
Exhibit m1.13mshowsmthat mthemchoicemof mamcollegemmajormhasmamfinancialmimpact.mOf mcoursemmoney
mcannot mbuymhappiness,mbut mhavingmambit mhelps.mIf myoumreallymwant mtombemanmelementarymschoolmt
eacher,myoummust mrecognizemthat myoumwillmnot mhavemasmmuchmwealthmasmam lawyermor mfinancialman
alyst.
Themsummarymof mthemlearningmgoalsmat mthemend mof mthemchaptermshould maid mthemstudent minmreviewi
ngmthemchaptermwhenmexammtimemcomes.mIt mwillmbe musefulmtompoint mout mtomthemstudent mhow mtomu
semthismmaterial.
LinkmtomSolutionsmtomFinancialmPlanningmExercises
Pre-tests
