SOLUTION MANUAL
Personal Finance, 14th Edition
By E. Thomas Garman, Chapter 1 - 17
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Part I: FINANCIAL PLANNING.
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1. Understanding Personal Finance.
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2. Career Planning.
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3. Financial Statements, Goals, and Budgets.
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Part II: MONEY MANAGEMENT.
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4. Managing Income Taxes.
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5. Managing Checking and Savings Accounts.
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6. Building and Maintaining Good Credit.
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7. Credit Cards and Consumer Loans.
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8. Vehicles and Other Major Purchases.
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9. Obtaining Affordable Housing.
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Part III: INCOME AND ASSET PROTECTION.
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10. Managing Property and Liability Risk.
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11. Planning for Health Care Expenses.
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12. Life Insurance Planning.
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Part IV: INVESTMENTS.
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13. Investment Fundamentals.
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14. Investing in Stocks and Bonds.
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15. Mutual and Exchange-Traded Funds.
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16. Real Estate and High-Risk Investments.
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17. Retirement and Estate Planning.
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,SolutionandAnswerGuide i
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GARMAN/FOX, PERSONAL F INANCE 14E, CHAPTER 1: THINKING LIKE A F INANCIAL PLANNER
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TABLE OF CONTENTS UI UI
Answers to Chapter Concept Checks ...................................................................................................... 2
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What Do You Recommend Now?............................................................................................................ 4
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Let’s Talk About It.................................................................................................................................. 5
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Do the Math ............................................................................................................................................ 6
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Financial Planning Cases ........................................................................................................................ 8
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Extended Learning ............................................................................................................................... 10
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, ANSWERS TO CHAPTER CONCEPT CHECKS UI UI UI UI
LO1.1 Recognize the keys to achieving financial success.
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1. Explain the five steps in the financial planning process. ui ui ui ui ui ui ui ui
Answer: There are five fundamental steps to the personal financial planning process: (1) evaluate your financi
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al health to your education and career choice; (2) define your financial goals; (3) develop a plan of action to achi
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eve your goals; (4) implement spending and saving plans to monitor and control progress toward your goals; a
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nd (5) review your financial progress and make changes as appropriate.
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2. Distinguish among financial success, financial security, and financial happiness. ui ui ui ui ui ui ui ui
Answer: Financial success is the achievement of financial aspirations that are desired, planned, or attempted.
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Success is defined by the individual or family that seeks it. Financial success may be defined as being able to live
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according to one’s standard of living. Financial security is that comfortable feeling that your financial resourc
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es will be adequate to fulfill any needs you have as well as your wants. Financial happiness is the experience y
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ou have when you are satisfied with money matters. People who are happy about their finances will see a spillo
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ver into positive feelings about life in general.
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3. Summarize what you will accomplish studying personal finance. ui ui ui ui ui ui ui
Answer: Several things can be accomplished by studying personal finance. Recognize how to manage unexpecte
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d and expected financial events. Pay as little as possible in income taxes. Understand how to effectively comparis
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on shop for vehicles and homes. Protect what we own. Invest wisely. Accumulate and protect the wealth that we ma
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y choose to spend during our non-working years (e.g., retirement) or donate.
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4. What are the building blocks to achieving financial success?
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Answer: The building blocks for achieving financial success include a foundation of regular income that provi
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des the means to support your lifestyle and save for desired goals in the future. The foundation supports a base
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of various banking accounts, insurance protection, and employee benefits. Then we can establish goals, a recor
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dkeeping system, a budget, and an emergency savings fund. We will also manage various expenses such as hou
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sing, transportation, insurance, and the payment of taxes. We will also need to handle credit, savings, and educa
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tional costs. Finally, we invest in various investment alternatives such as mutual funds, stocks, and bonds, ofte
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n for retirement. As a result of all these building blocks, we are more apt to have a financially successful life.
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LO1.2 Understand how the economy affects your personal financial success.
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1. Summarize the phases of the business cycle. ui ui ui ui ui ui
Answer: The business cycle entails a wavelike pattern of rising and falling economic activity as measured by e
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conomic indicators like unemployment rates or the gross domestic product. The phases of the business cycle inc
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lude expansion (preferred stage—
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production is high, unemployment low, interest rates low or falling, stock market and consumer demand high),
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peak, contraction, downturn, trough, and recovery.
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2. Describe two statistics that help predict the future direction of the economy.
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Answer: Forecasting the state of the economy involves predicting, estimating, or calculating what will happen
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in advance. We need to be able to forecast the state of the economy, inflation, and interest rates so that we have a
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dvance warning of the directions and strength of changes in economic trends since they will affect our personal f
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inances. Two statistics we could watch are the consumer confidence index (how consumers feel about the econ
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omy and their personal finances) and the index of leading economic indicators (composite index, averages ten
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components of economic growth). ui ui ui
