13th Editio
PERSONAL
FINANCIAL
PLANNING
Lawrence J. Gitman, Ph.D., CFP® - San Diego State University Michael D. Joehnk, Ph.D., CPA - Arizona State University Randall S. Billingsley, Ph.D., FRM, CPA - Virginia Tech
/ SOUTH-WESTERN
Brief Contents
Preface, ix
About the Authors, xviii
PARTI FOUNDATIONS OF FINANCIAL PLANNING, 1 Chapter 1 Understanding the Financial Planning Process, 2
Chapter 2 Using Financial Statements and Budgets, 41 Chapter 3 Preparing Your Taxes, 80
PART 2 MANAGING BASIC ASSETS, 117 Chapter 4 Managing Your Cash and Savings, 118
Chapter 5 Making Automobile and Housing Decisions, 154 PART 3 MANAGING CREDIT, 207
Chapter 6 Using Credit, 208
Chapter 7 Using Consumer Loans, 250
PART 4 MANAGING INSURANCE NEEDS, 285 Chapter 8 Insuring Your Life, 286
Chapter 9 Insuring Your Health, 324 Chapter 10 Protecting Your Property, 363
PART 5 MANAGING INVESTMENTS, 397 Chapter 11 Investment Planning, 398
Chapter 12 Investing in Stocks and Bonds, 445
Chapter 13 Investing in Mutual Funds, ETFs, and Real Estate, 490 PART 6 RETIREMENT AND ESTATE PLANNING, 537 Chapter 14 Planning for Retirement, 538
Chapter 15 Preserving Your Estate, 578 Appendix A Table of Future Value Factors, 616
Appendix B Table of Future Value Annuity Factors, 617 Appendix C Table of Present Value Factors, 618
Appendix D Table of Present Value Annuity Factors, 619 Appendix E Using a Financial Calculator, 620
Contents
Preface, ix
About the Authors, xviii
PART 1 FOUNDATIONS OF FINANCIAL PLANNING, 1 CHAPTER 1 Understanding the Financial Planning Process, 2
The Rewards of Sound Financial Planning, 3 The Persona/ Financiai Planning Process, 7
WORKSHEET 1.1 Summary of Personal Financial Goals, 14
From Goals to Plans: A Lifetime of Planning, 15
WORKSHEET 1.2 Analyzing the Benefit of a Second Income, 21
The Planning Environment, 29
What Determines Your Personal Income?, 34
ARIEL SKELLEY/BLEND IMAGES/JUPITER IMAGES
CHAPTER 2 Using Financial Statements and Budgets, 41 Mapping OutYour Financial Future, 42
The Balance Sheet: How Much Are You Worth Today?, 44
WORKSHEET2.1 Balance Sheet for Rick and Beth Fletcher, 46
The Income and Expense Statement: What We Earn and Where It Goes, 49
WORKSHEET 2.2 Income and Expense Statement for Rick and Beth Fletcher, 51
Using Your Personal Financial Statements, 55
Cash In and Cash Out: Preparing and Using Budgets, 59
WORKSHEET 2.3 The Fletchers' Annual Cash Budget by Month, 61
WORKSHEET 2.4 The Fletchers' Budget Control Schedule for January, February, and March 2016, 66
TheTime Value of Money: Putting a Dollar Value on Financial Goals, 67 CHAPTER 3 Preparing Your Taxes, 80
Understanding Federal IncomeTax Principles, 81 It's Taxable Income that Matters, 85
Calculating and Filing yourTaxes, 91
WORKSHEET 3.1 2011 Tax Return (Form 1040EZ) for Hiro Tanaka, 96 WORKSHEET 3.2 2011 Tax Return (Form 1040) for the Sullivans, 99
Other Filing Considerations, 103 Effective Tax Planning, 109
PART 2 MANAGING BASIC ASSETS, 117 CHAPTER 4 Managing Your Cash and Savings, 118
The Role of Cash Management in Personal Financial Planning, 119 Today's Financial Services Marketplace, 121
A Full Menu of Cash Management Products, 125 Maintaining a Checking Account, 133
WORKSHEET 4.1 An Account Reconciliation Form: Jeremy Bentley's May 2015 Statement, 140
Establishing a Savings Program, 141
FUSE/JUPITER IMAGES
CHAPTER 5 Making Automobile and Housing Decisions, 154 Buying an Automobile, 155
Leasing a Car, 164
WORKSHEET 5.1 Comparing Stella Rather's Automobile Lease versus Purchase Costs, 168
Meeting Housing Needs: Buy or Rent?, 169
WORKSHEET 5.2 Rent-or-Buy Cost Comparison, 175
How Much Housing Can You Afford?, 176
WORKSHEET 5.3 Home Affordability Analysis for the Compton Family, 184
The Home-Buying Process, 186 Financing the Transaction, 192
WORKSHEET 5.4 Mortgage Refinancing Analysis for the De Luca Family, 199
PARTS MANAGING CREDIT, 207 CHAPTER 6 Using Credit, 208
The Basic Concepts of Credit, 209
Credit Cards and OtherTypes of Open Account Credit, 215 WORKSHEET 6.7 Eva/uaf/ng Ybur Cred/f, 216
Obtaining and Managing Open Forms of Credit, 230
Using Credit Wisely, 239
:0BURN, 2009/USED UNDER LICENSE FROM SHUTTERSTOCK.COM
CHAPTER 7 Using Consumer Loans, 250 Basic Features of Consumer Loans, 251 Managing Your Credit, 261
Single-Payment Loans, 264
WORKSHEET 7.1 Tracking Your Consumer Debt, 265
Installment Loans, 271
WORKSHEET 7.2 To Borrow or Not to Borrow, 278
PART 4 MANAGING INSURANCE NEEDS, 285 CHAPTER 8 Insuring Your Life, 286
Basic Insurance Concepts, 287 Why Buy Life Insurance?, 289
How Much Life Insurance Is Right forYou?, 290
WORKSHEET 8.1 Determining the Meeses' Need for Life Insurance, 295
What Kind of Policy Is Right forYou?, 297 Buying Life Insurance, 308
Key Features of Life Insurance Policies, 314
DON BAYLEY/IST0CKPH0T0 COM
CHAPTER 9 Insuring Your Health, 324
The Importance of Health Insurance Coverage, 325 Health Insurance Plans, 327
Health Insurance Decisions, 334
Medical Expense Coverage and Policy Provisions, 339
WORKSHEET 9.1 Health Insurance Checklist, 341
Long-Term-Care Insurance, 348 Disability Income Insurance, 353
CHAPTER 10 PART 5 CHAPTER 11 CHAPTER 12 CHAPTER 13 PART 6 CHAPTER 14 CHAPTER 15
Protecting Your Property, 363
Basic Principles of Property Insurance, 364 Homeowner's Insurance, 368
Automobile Insurance, 378
Other Property and Liability Insurance, 387 Buying Insurance and Settling Claims, 388
MANAGING INVESTMENTS, 397 Investment Planning, 398
The Objectives and Rewards of Investing, 399
WORKSHEET 11.1 Determining the Amount of Investment Capital, 403
Securities Markets, 408
Making Transactions in the Securities Markets, 415 Becoming an Informed Investor, 422
Online Investing, 427
Managing Your Investment Holdings, 432
WORKSHEET 11.2 Keeping Tabs on Your Investment Holdings, 437
STAN HONDA/AFP/GETTY IMAGES/ NEWSCOM
Investing in Stocks and Bonds, 445 The Risks and Rewards of Investing, 446 Investing in Common Stock, 454
Investing in Bonds, 469
Investing in Mutual Funds, ETFs, and Real Estate, 490 Mutual Funds and Exchange Traded Funds: Some Basics, 491 Types of Funds and Fund Services, 504
Making Mutual Fund and ETF Investments, 512 Investing in Real Estate, 523
RETIREMENT AND ESTATE PLANNING, 537 Planning for Retirement, 538
An Overview of Retirement Planning, 539
WORKSHEET 14.1 Estimating Future Retirement Needs, 543
Social Security, 548
Pension Plans and Retirement Programs, 552 Annuities, 565
STAN HONDA/AFP/GETTY IMAGES/ NEWSCOM
Preserving Your Estate, 578 Principles of Estate Planning, 579 Thy Will Be Done . . ., 586
WORKSHEET 15.1 A Checklist of Items to Keep in a Safe-Deposit Box, 593
Trusts, 598
Federal Unified Transfer Taxes, 602 Calculating Estate Taxes, 606
WORKSHEET 15.2 Computing Federal Estate Tax Due, 608
Estate Planning Techniques, 609
Appendix A Table of Future Value Factors, 616 Appendix B Table of Future Value Annuity Factors, 617 Appendix C Table of Present Value Factors, 618 Appendix D Table of Present Value Annuity Factors, 619 Appendix E Using a Financial Calculator, 620
