,SOLUTION MANUAL FOR gg gg
Personal Financial Planning 15th Edition by Randy
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Billingsley, Lawrence J. Gitman, Michael D. Joehnk
g gg gg gg gg gg gg
Understanding the gg gg
Financial Planning Process
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Chapter 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
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
save. That means knowing where you are financially and planning on how to get where
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
you want to be in the future no matter what life throws at you. For example, how should
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
your plan handle the projection that Social Security costs may exceed revenues by 2035?
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
And what if the government decides to raise tax rates to help cover the federal deficit?
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
An informed financial plan should reflect such uncertainties and more.
gg gg gg gg gg gg gg gg gg gg
This chapter overviews the financial planning process and explains its context. Topics
gg gg gg gg gg gg gg gg gg gg gg
include how financial plans change to accommodate your current stage in life and the role
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
that financial planners can play in helping you achieve your objectives. After reading this
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
chapter you will have a good perspective on how to organize your overall personal
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
financial plan.
gg gg
LEARNING GOALS gg
LG1 Identify the benefits of using personal financial planning techniques to manage
gg gg gg gg gg gg gg gg gg gg gg
your finances.
gg gg
Key concept in this section is the planning model as displayed in Exhibit 1.1. Your
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
standard of living is greatly impacted by your spending habits and your commitment to
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
saving. Your spending is measured by your propensity to consume. Wealth is the total
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
value of all property you own less the amount that you owe to others.
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will
g g gg gg gg gg gg gg gg gg gg gg gg gg
you do with the money? Write down three ways you will spend or use the money.
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
,Ask the students to share one item with the class and record what they say so that the entire
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
class can reflect on the answers. Hopefully, at least a few will mention investing even if
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
only $10,000 of the amount. Use their answers to discuss taking care of current needs
gg gg gg gg gg g g gg gg gg gg gg gg gg gg gg
versus future needs.
gg gg gg
Focus on their propensity to consume and its impact on accumulating wealth. Point out the
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
Financial Planning Tip, ―Be SMART in Planning Your Financial Goals.‖
gg gg gg gg gg gg gg gg gg gg
Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
1.6 to help the student identify where they are now.
gg gg gg gg gg gg gg gg gg gg
LG2 Describe the personal financial planning process and define your goals.
gg gg gg gg gg gg gg gg gg gg
Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless;
gg gg gg gg gg gg gg gg gg gg gg gg
Planning is priceless‖. The process of planning allows you to focus on the issues that are
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
most important and to be ready when things change.
gg gg gg gg gg gg gg gg gg
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
defining your financial goals. Exhibit 1.6 lists goals by age to demonstrate how goals
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
change over time. Use the examples in Exhibit 1.5 to ask students if the assumptions are
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
realistic. Yes, the answer is in the exhibit, but many will not have read chapter at this
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
point. For your use, the assumptions are:
gg gg gg gg gg gg gg
Assumption 1: Saving a few thousand dollars a year should provide enough to fund my
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
child‘s college Education.
gg gg gg
Assumption 2: An emergency fund lasting 3 months should be adequate.
gg gg gg gg gg gg gg gg gg gg
Assumption 3: I will be able to retire at 65 and should have plenty to live on in
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
retirement. Assumption 4: I‘m relying on the rule of thumb that I will need only 70
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
percent of my pre- retirement income to manage nicely in retirement.
gg gg gg gg gg gg gg gg gg gg gg
There are several worksheets in the book. Worksheet 1.1 gives the student a format to
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
write down their Personal Financial Goals. There is power in writing down goals [and most
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
any other plan]. Recording the goal and then reviewing three months later will help you
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
to keep focus on the goal.
gg gg gg gg gg gg
LG3 Explain the life cycle of financial plans, their role in achieving your financial
gg gg gg gg gg gg gg gg gg gg gg gg gg
goals, how to deal with special planning concerns, and the use of professional
gg gg gg gg gg gg gg gg gg gg gg gg gg
financial planners.
gg gg
Exhibit 1.7 can help focus the attention on how goals differ between the various stages of
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
life. Section 1-3b lists various decisions that you will have to make over your life. The
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
section 1-3c addresses Special Planning Concerns. Worksheet 1.2 focuses on the financial
gg gg gg gg gg gg gg gg gg gg gg gg
benefit to the family of the second income. If the second income is from a minimum wage
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
job, it may not be a good financial decision. Of course having a job, even a minimum wage
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
job, may give the person psychic income that will override the financial impact.
gg gg gg gg gg gg gg gg gg gg gg gg gg
While perhaps off topic, I recall a high school science teacher who was a smoker. He
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
walked through the amount of money he spent on purchasing tobacco products. That
gg gg gg gg gg gg gg gg gg gg gg gg g g
computation had a
gg gg gg
, lot to do with my decision to not smoke. How this relates to the course is that this is an
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
illustration of how the financial impact of a decision can drive the decision.
gg gg gg gg gg gg gg gg gg gg gg gg gg
LG4 Examine the economic environment’s influence on personal financial planning.
gg gg gg gg gg gg gg gg gg
For older folks, the financial crisis of 2008-2009 is fresh in our memory. To the student of
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
2021, that crisis is more of history than life. If you can share a war story on how you
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
were personally impacted, it will help bring the impact of the world economy on financial
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
plans to life. The book speaks how to manage this type of crisis, but you had to go
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
through it to really understand the impact it had.
gg gg gg gg gg gg gg gg gg
The value of professional advice is greatly understated. If by talking to a professional you
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
can prevent making a mistake -- that can be of a great value. Section 1-3e speaks to the
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
use of professional financial planners. Exhibit 1.9 lists out the various certifications that
gg gg gg gg gg g g gg gg gg gg gg gg gg
planners have.
gg gg
Economic or business cycles are real. Perhaps the most useful thing about the cycles is the
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
knowledge that if things are bad, you know they will get better. Of course, when life is
gg gg gg gg gg gg gg gg gg gg gg gg g g gg gg gg gg
good, you know that the bad cycle will come around again. Thus, financial planning
gg gg gg gg gg gg gg gg gg gg gg g g gg gg
requires saving in the good times for the bad times. See the ―Test Yourself‖ question 1-17
gg gg gg gg gg gg gg gg gg gg g g gg gg gg gg gg
for a short discussion of business cycles.
gg gg gg gg gg gg gg
The power of compounding is rarely understood. Exhibit 1.8 shows how the amount
gg gg gg gg gg gg gg gg gg gg gg gg
$10,000 will grow over time. The longer the investment stays invested, the greater the
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
amount – the power of compound interest.
gg gg gg gg gg gg gg
LG5 Evaluate the impact of age, education, and geographic location on personal income.
gg gg gg gg gg gg gg gg gg gg gg gg
Exhibit 1.12 says it all. gg gg gg gg
LG6 Understand the importance of career choices and their relationship to personal
gg gg gg gg gg gg gg gg gg gg gg
financial planning.
gg gg
Exhibit 1.13 shows that the choice of a college major has a financial impact. Of course
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
money cannot buy happiness, but having a bit helps. If you really want to be an
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
elementary school teacher, you must recognize that you will not have as much wealth as a
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
lawyer or financial analyst.
gg gg gg gg
The summary of the learning goals at the end of the chapter should aid the student in
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
reviewing the chapter when exam time comes. It will be useful to point out to the
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
student how to use this material.
gg gg gg gg gg gg
Link to Solutions to Financial Planning Exercises
gg gg gg gg gg gg
Pre-tests
Personal Financial Planning 15th Edition by Randy
gg gg gg gg gg gg
Billingsley, Lawrence J. Gitman, Michael D. Joehnk
g gg gg gg gg gg gg
Understanding the gg gg
Financial Planning Process
gg gg gg
Chapter 1
gg gg
How Will This Affect Me?
gg gg gg gg
The heart of financial planning is making sure your values line up with how you spend and
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
save. That means knowing where you are financially and planning on how to get where
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
you want to be in the future no matter what life throws at you. For example, how should
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
your plan handle the projection that Social Security costs may exceed revenues by 2035?
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
And what if the government decides to raise tax rates to help cover the federal deficit?
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
An informed financial plan should reflect such uncertainties and more.
gg gg gg gg gg gg gg gg gg gg
This chapter overviews the financial planning process and explains its context. Topics
gg gg gg gg gg gg gg gg gg gg gg
include how financial plans change to accommodate your current stage in life and the role
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
that financial planners can play in helping you achieve your objectives. After reading this
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
chapter you will have a good perspective on how to organize your overall personal
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
financial plan.
gg gg
LEARNING GOALS gg
LG1 Identify the benefits of using personal financial planning techniques to manage
gg gg gg gg gg gg gg gg gg gg gg
your finances.
gg gg
Key concept in this section is the planning model as displayed in Exhibit 1.1. Your
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
standard of living is greatly impacted by your spending habits and your commitment to
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
saving. Your spending is measured by your propensity to consume. Wealth is the total
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
value of all property you own less the amount that you owe to others.
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will
g g gg gg gg gg gg gg gg gg gg gg gg gg
you do with the money? Write down three ways you will spend or use the money.
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
,Ask the students to share one item with the class and record what they say so that the entire
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
class can reflect on the answers. Hopefully, at least a few will mention investing even if
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
only $10,000 of the amount. Use their answers to discuss taking care of current needs
gg gg gg gg gg g g gg gg gg gg gg gg gg gg gg
versus future needs.
gg gg gg
Focus on their propensity to consume and its impact on accumulating wealth. Point out the
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
Financial Planning Tip, ―Be SMART in Planning Your Financial Goals.‖
gg gg gg gg gg gg gg gg gg gg
Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
1.6 to help the student identify where they are now.
gg gg gg gg gg gg gg gg gg gg
LG2 Describe the personal financial planning process and define your goals.
gg gg gg gg gg gg gg gg gg gg
Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless;
gg gg gg gg gg gg gg gg gg gg gg gg
Planning is priceless‖. The process of planning allows you to focus on the issues that are
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
most important and to be ready when things change.
gg gg gg gg gg gg gg gg gg
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
defining your financial goals. Exhibit 1.6 lists goals by age to demonstrate how goals
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
change over time. Use the examples in Exhibit 1.5 to ask students if the assumptions are
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
realistic. Yes, the answer is in the exhibit, but many will not have read chapter at this
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
point. For your use, the assumptions are:
gg gg gg gg gg gg gg
Assumption 1: Saving a few thousand dollars a year should provide enough to fund my
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
child‘s college Education.
gg gg gg
Assumption 2: An emergency fund lasting 3 months should be adequate.
gg gg gg gg gg gg gg gg gg gg
Assumption 3: I will be able to retire at 65 and should have plenty to live on in
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
retirement. Assumption 4: I‘m relying on the rule of thumb that I will need only 70
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
percent of my pre- retirement income to manage nicely in retirement.
gg gg gg gg gg gg gg gg gg gg gg
There are several worksheets in the book. Worksheet 1.1 gives the student a format to
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
write down their Personal Financial Goals. There is power in writing down goals [and most
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
any other plan]. Recording the goal and then reviewing three months later will help you
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
to keep focus on the goal.
gg gg gg gg gg gg
LG3 Explain the life cycle of financial plans, their role in achieving your financial
gg gg gg gg gg gg gg gg gg gg gg gg gg
goals, how to deal with special planning concerns, and the use of professional
gg gg gg gg gg gg gg gg gg gg gg gg gg
financial planners.
gg gg
Exhibit 1.7 can help focus the attention on how goals differ between the various stages of
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
life. Section 1-3b lists various decisions that you will have to make over your life. The
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
section 1-3c addresses Special Planning Concerns. Worksheet 1.2 focuses on the financial
gg gg gg gg gg gg gg gg gg gg gg gg
benefit to the family of the second income. If the second income is from a minimum wage
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
job, it may not be a good financial decision. Of course having a job, even a minimum wage
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
job, may give the person psychic income that will override the financial impact.
gg gg gg gg gg gg gg gg gg gg gg gg gg
While perhaps off topic, I recall a high school science teacher who was a smoker. He
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
walked through the amount of money he spent on purchasing tobacco products. That
gg gg gg gg gg gg gg gg gg gg gg gg g g
computation had a
gg gg gg
, lot to do with my decision to not smoke. How this relates to the course is that this is an
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
illustration of how the financial impact of a decision can drive the decision.
gg gg gg gg gg gg gg gg gg gg gg gg gg
LG4 Examine the economic environment’s influence on personal financial planning.
gg gg gg gg gg gg gg gg gg
For older folks, the financial crisis of 2008-2009 is fresh in our memory. To the student of
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
2021, that crisis is more of history than life. If you can share a war story on how you
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
were personally impacted, it will help bring the impact of the world economy on financial
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
plans to life. The book speaks how to manage this type of crisis, but you had to go
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
through it to really understand the impact it had.
gg gg gg gg gg gg gg gg gg
The value of professional advice is greatly understated. If by talking to a professional you
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
can prevent making a mistake -- that can be of a great value. Section 1-3e speaks to the
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
use of professional financial planners. Exhibit 1.9 lists out the various certifications that
gg gg gg gg gg g g gg gg gg gg gg gg gg
planners have.
gg gg
Economic or business cycles are real. Perhaps the most useful thing about the cycles is the
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
knowledge that if things are bad, you know they will get better. Of course, when life is
gg gg gg gg gg gg gg gg gg gg gg gg g g gg gg gg gg
good, you know that the bad cycle will come around again. Thus, financial planning
gg gg gg gg gg gg gg gg gg gg gg g g gg gg
requires saving in the good times for the bad times. See the ―Test Yourself‖ question 1-17
gg gg gg gg gg gg gg gg gg gg g g gg gg gg gg gg
for a short discussion of business cycles.
gg gg gg gg gg gg gg
The power of compounding is rarely understood. Exhibit 1.8 shows how the amount
gg gg gg gg gg gg gg gg gg gg gg gg
$10,000 will grow over time. The longer the investment stays invested, the greater the
gg gg gg gg gg gg gg gg gg gg gg gg gg gg
amount – the power of compound interest.
gg gg gg gg gg gg gg
LG5 Evaluate the impact of age, education, and geographic location on personal income.
gg gg gg gg gg gg gg gg gg gg gg gg
Exhibit 1.12 says it all. gg gg gg gg
LG6 Understand the importance of career choices and their relationship to personal
gg gg gg gg gg gg gg gg gg gg gg
financial planning.
gg gg
Exhibit 1.13 shows that the choice of a college major has a financial impact. Of course
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
money cannot buy happiness, but having a bit helps. If you really want to be an
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
elementary school teacher, you must recognize that you will not have as much wealth as a
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
lawyer or financial analyst.
gg gg gg gg
The summary of the learning goals at the end of the chapter should aid the student in
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
reviewing the chapter when exam time comes. It will be useful to point out to the
gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg gg
student how to use this material.
gg gg gg gg gg gg
Link to Solutions to Financial Planning Exercises
gg gg gg gg gg gg
Pre-tests
