Solution and Answer Guide: Garman/Fox, Personal Finance 14e, Chapter 1: Thinking Like a
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Financial
SolutionandAnswerGuide
GARMAN/FOX, PERSONAL S S S S S S FINANCE S S S S 14E, S S CHAPTER S S S S 1: THINKING
S S S S S S LIKE S S S S A S S
FINANCIAL
S S PLANNER S S S S
TABLE OF CONTENTS SS SS
Answers to Chapter Concept Checks ..................................................................................................... 2
ss ss ss ss
What Do You Recommend Now? .......................................................................................................... 4
ss ss ss ss
Let’s Talk About It ................................................................................................................................... 5
ss ss ss
Do the Math............................................................................................................................................... 6
s s ss
Financial Planning Cases ........................................................................................................................... 8
ss ss
Extended Learning ................................................................................................................................... 10
ss
© 2024 Cengage. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly
pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp
1
accessible
s s pp
, Solution and Answer Guide: Garman/Fox, Personal Finance 14e, Chapter 1: Thinking Like a
ss ss ss ss ss ss ss ss ss ss ss ss
Financial
ANSWERS TO CHAPTER CONCEPT CHECKS SS SS SS SS
LO1.1 Recognize the keys to achieving financial success.
ss ss ss ss ss ss ss
1. Explain the five steps in the financial planning process.
ss ss ss ss ss s s ss ss
Answer: There are five fundamental steps to the personal financial planning
s s ss ss ss ss ss ss ss ss ss ss process: (1) evaluate ss ss
your financial health to your education and career choice; (2) define your financial
ss ss ss ss ss ss ss ss ss ss ss ss ss goals; (3) develop a ss ss ss
plan of action to achieve your goals; (4) implement spending and saving plans to
ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss monitor and control ss ss
progress toward your goals; and (5) review your financial progress and
ss s s s s s s s s s s s s s s s s s s s s s s make changes as s s s s
appropriate.
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2. Distinguish among financial success, financial security, and financial happiness.
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Answer: Financial success is the achievement of financial aspirations that are desired,
s s s s s s s s s s s s s s s s s s s s s s
planned, or attempted. Success is defined by the individual or family that seeks it. Financial
s s s s ss s s ss ss s s ss s s s s s s ss ss ss s s
success may be defined as being able to live according to one’s standard of living. Financial
s s s s ss ss ss s s ss ss s s ss ss ss s s ss ss s s
security is that comfortable feeling that your financial resources will be adequate to
s s s s ss ss s s s s s s s s s s s s s s s s s s
fulfill any needs you have as well as your wants. Financial happiness is the
s s s s s s s s s s s s ss s s s s s s s s s s s s s s
experience you have when you are satisfied with money matters. People who are happy
s s s s s s s s s s s s s s s s ss s s ss s s ss ss
about their finances will see a spillover into positive feelings about life in general.
ss ss ss s s s s ss ss s s s s ss ss ss s s ss
3. Summarize what you will accomplish studying personal finance.
ss ss ss ss ss ss ss
Answer: Several things can be accomplished by studying personal finance. Recognize how to
s s s s s s ss s s s s ss s s s s s s s s ss
manage unexpected and expected financial events. Pay as little as possible in income taxes.
s s ss s s s s s s s s s s s s s s s s s s s s s s s s
Understand how to effectively comparison shop for vehicles and homes. Protect what we own. Invest
s s s s s s ss ss ss ss ss ss ss ss ss ss ss ss
wisely. Accumulate and protect the wealth that we may choose to spend during our non-working years
ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss
(e.g., retirement) or donate.
ss ss ss ss
4. What are the building blocks to achieving financial success?
ss ss ss ss ss ss ss ss
Answer: The building blocks for achieving financial success include a foundation of
s s s s s s s s s s s s s s s s s s s s s s
regular income that provides the means to support your lifestyle and save for desired
s s s s ss s s s s s s s s s s s s s s s s s s s s s s
goals in the future. The foundation supports a base of various banking accounts, insurance
s s s s s s s s s s ss ss s s s s ss ss s s ss s s
protection, and employee benefits. Then we can establish goals, a recordkeeping system, a
s s s s s s s s ss s s s s s s s s s s s s s s s s
budget, and an emergency savings fund. We will also manage various expenses such as
s s s s s s s s s s s s s s ss s s s s s s ss ss ss
housing, transportation, insurance, and the payment of taxes. We will also need to handle
ss s s s s s s s s s s ss ss ss ss ss ss ss ss
credit, savings, and educational costs. Finally, we invest in various investment alternatives
ss ss ss s s ss ss s s ss ss ss ss s s
such as mutual funds, stocks, and bonds, often for retirement. As a result of all these
s s s s s s s s s s s s s s s s s s s s s s s s s s s s ss s s
building blocks, we are more apt to have a financially successful life.
s s s s s s s s s s s s s s s s s s s s s s s s
LO1.2 Understand how the economy affects your personal financial success.
ss ss ss ss ss ss ss ss ss
1. Summarize the phases of the business cycle. ss ss ss ss ss ss
Answer: The business cycle entails a wavelike pattern of rising and falling economic activity
s s ss ss s s ss s s s s ss ss ss s s s s s s
as measured by economic indicators like unemployment rates or the gross domestic product. The
ss ss s s ss ss ss ss ss ss ss ss ss ss ss
phases of the business cycle include expansion (preferred stage—production is high,
ss ss ss ss ss s s s s ss s s ss ss
unemployment low, interest rates low or falling, stock market and consumer demand high),
s s s s ss ss ss ss s s s s s s s s ss s s s s
peak, contraction, downturn, trough, and recovery.
s s ss s s ss s s s s
2. Describe two statistics that help predict the future direction of the economy.
ss ss ss ss ss ss ss ss ss ss ss
Answer: Forecasting the state of the economy involves predicting, estimating, or calculating
s s ss ss ss ss ss ss ss s s s s ss
what will happen in advance. We need to be able to forecast the state of the economy,
s s s s ss ss ss s s s s s s s s ss s s s s ss s s s s ss s s
© 2024 Cengage. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly
pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp
2
accessible
s s pp
, Solution and Answer Guide: Garman/Fox, Personal Finance 14e, Chapter 1: Thinking Like a
ss ss ss ss ss ss ss ss ss ss ss ss
Financial
s s inflation, and interest rates so that we have advance warning of the directions and strength
s s s s ss s s s s s s s s s s s s s s ss s s ss s s
s s of changes in economic trends since they will affect our personal finances. Two statistics
ss ss ss s s ss s s ss s s s s s s s s s s s s
s s we could watch are the consumer confidence index (how consumers feel about the
s s s s s s s s s s ss s s s s s s s s s s s s
s s economy and their personal finances) and the index
s s s s s s s s s s s s s s
© 2024 Cengage. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly
pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp
3
accessible
s s pp
, Solution and Answer Guide: Garman/Fox, Personal Finance 14e, Chapter 1: Thinking Like a
ss ss ss ss ss ss ss ss ss ss ss ss
Financial
of leading economic indicators (composite index, averages ten components of economic growth).
ss ss ss ss ss ss ss ss ss ss ss
© 2024 Cengage. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly
pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp
4
accessible
s s pp
ss ss ss ss ss ss ss ss ss ss ss ss
Financial
SolutionandAnswerGuide
GARMAN/FOX, PERSONAL S S S S S S FINANCE S S S S 14E, S S CHAPTER S S S S 1: THINKING
S S S S S S LIKE S S S S A S S
FINANCIAL
S S PLANNER S S S S
TABLE OF CONTENTS SS SS
Answers to Chapter Concept Checks ..................................................................................................... 2
ss ss ss ss
What Do You Recommend Now? .......................................................................................................... 4
ss ss ss ss
Let’s Talk About It ................................................................................................................................... 5
ss ss ss
Do the Math............................................................................................................................................... 6
s s ss
Financial Planning Cases ........................................................................................................................... 8
ss ss
Extended Learning ................................................................................................................................... 10
ss
© 2024 Cengage. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly
pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp
1
accessible
s s pp
, Solution and Answer Guide: Garman/Fox, Personal Finance 14e, Chapter 1: Thinking Like a
ss ss ss ss ss ss ss ss ss ss ss ss
Financial
ANSWERS TO CHAPTER CONCEPT CHECKS SS SS SS SS
LO1.1 Recognize the keys to achieving financial success.
ss ss ss ss ss ss ss
1. Explain the five steps in the financial planning process.
ss ss ss ss ss s s ss ss
Answer: There are five fundamental steps to the personal financial planning
s s ss ss ss ss ss ss ss ss ss ss process: (1) evaluate ss ss
your financial health to your education and career choice; (2) define your financial
ss ss ss ss ss ss ss ss ss ss ss ss ss goals; (3) develop a ss ss ss
plan of action to achieve your goals; (4) implement spending and saving plans to
ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss monitor and control ss ss
progress toward your goals; and (5) review your financial progress and
ss s s s s s s s s s s s s s s s s s s s s s s make changes as s s s s
appropriate.
s s
2. Distinguish among financial success, financial security, and financial happiness.
ss ss ss ss ss ss ss ss
Answer: Financial success is the achievement of financial aspirations that are desired,
s s s s s s s s s s s s s s s s s s s s s s
planned, or attempted. Success is defined by the individual or family that seeks it. Financial
s s s s ss s s ss ss s s ss s s s s s s ss ss ss s s
success may be defined as being able to live according to one’s standard of living. Financial
s s s s ss ss ss s s ss ss s s ss ss ss s s ss ss s s
security is that comfortable feeling that your financial resources will be adequate to
s s s s ss ss s s s s s s s s s s s s s s s s s s
fulfill any needs you have as well as your wants. Financial happiness is the
s s s s s s s s s s s s ss s s s s s s s s s s s s s s
experience you have when you are satisfied with money matters. People who are happy
s s s s s s s s s s s s s s s s ss s s ss s s ss ss
about their finances will see a spillover into positive feelings about life in general.
ss ss ss s s s s ss ss s s s s ss ss ss s s ss
3. Summarize what you will accomplish studying personal finance.
ss ss ss ss ss ss ss
Answer: Several things can be accomplished by studying personal finance. Recognize how to
s s s s s s ss s s s s ss s s s s s s s s ss
manage unexpected and expected financial events. Pay as little as possible in income taxes.
s s ss s s s s s s s s s s s s s s s s s s s s s s s s
Understand how to effectively comparison shop for vehicles and homes. Protect what we own. Invest
s s s s s s ss ss ss ss ss ss ss ss ss ss ss ss
wisely. Accumulate and protect the wealth that we may choose to spend during our non-working years
ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss ss
(e.g., retirement) or donate.
ss ss ss ss
4. What are the building blocks to achieving financial success?
ss ss ss ss ss ss ss ss
Answer: The building blocks for achieving financial success include a foundation of
s s s s s s s s s s s s s s s s s s s s s s
regular income that provides the means to support your lifestyle and save for desired
s s s s ss s s s s s s s s s s s s s s s s s s s s s s
goals in the future. The foundation supports a base of various banking accounts, insurance
s s s s s s s s s s ss ss s s s s ss ss s s ss s s
protection, and employee benefits. Then we can establish goals, a recordkeeping system, a
s s s s s s s s ss s s s s s s s s s s s s s s s s
budget, and an emergency savings fund. We will also manage various expenses such as
s s s s s s s s s s s s s s ss s s s s s s ss ss ss
housing, transportation, insurance, and the payment of taxes. We will also need to handle
ss s s s s s s s s s s ss ss ss ss ss ss ss ss
credit, savings, and educational costs. Finally, we invest in various investment alternatives
ss ss ss s s ss ss s s ss ss ss ss s s
such as mutual funds, stocks, and bonds, often for retirement. As a result of all these
s s s s s s s s s s s s s s s s s s s s s s s s s s s s ss s s
building blocks, we are more apt to have a financially successful life.
s s s s s s s s s s s s s s s s s s s s s s s s
LO1.2 Understand how the economy affects your personal financial success.
ss ss ss ss ss ss ss ss ss
1. Summarize the phases of the business cycle. ss ss ss ss ss ss
Answer: The business cycle entails a wavelike pattern of rising and falling economic activity
s s ss ss s s ss s s s s ss ss ss s s s s s s
as measured by economic indicators like unemployment rates or the gross domestic product. The
ss ss s s ss ss ss ss ss ss ss ss ss ss ss
phases of the business cycle include expansion (preferred stage—production is high,
ss ss ss ss ss s s s s ss s s ss ss
unemployment low, interest rates low or falling, stock market and consumer demand high),
s s s s ss ss ss ss s s s s s s s s ss s s s s
peak, contraction, downturn, trough, and recovery.
s s ss s s ss s s s s
2. Describe two statistics that help predict the future direction of the economy.
ss ss ss ss ss ss ss ss ss ss ss
Answer: Forecasting the state of the economy involves predicting, estimating, or calculating
s s ss ss ss ss ss ss ss s s s s ss
what will happen in advance. We need to be able to forecast the state of the economy,
s s s s ss ss ss s s s s s s s s ss s s s s ss s s s s ss s s
© 2024 Cengage. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly
pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp
2
accessible
s s pp
, Solution and Answer Guide: Garman/Fox, Personal Finance 14e, Chapter 1: Thinking Like a
ss ss ss ss ss ss ss ss ss ss ss ss
Financial
s s inflation, and interest rates so that we have advance warning of the directions and strength
s s s s ss s s s s s s s s s s s s s s ss s s ss s s
s s of changes in economic trends since they will affect our personal finances. Two statistics
ss ss ss s s ss s s ss s s s s s s s s s s s s
s s we could watch are the consumer confidence index (how consumers feel about the
s s s s s s s s s s ss s s s s s s s s s s s s
s s economy and their personal finances) and the index
s s s s s s s s s s s s s s
© 2024 Cengage. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly
pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp
3
accessible
s s pp
, Solution and Answer Guide: Garman/Fox, Personal Finance 14e, Chapter 1: Thinking Like a
ss ss ss ss ss ss ss ss ss ss ss ss
Financial
of leading economic indicators (composite index, averages ten components of economic growth).
ss ss ss ss ss ss ss ss ss ss ss
© 2024 Cengage. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly
pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp pp
4
accessible
s s pp
