Personal financial planning billingsley pdf

Lawrence J. Gitman, Ph.D., CFP® – San Diego State University

Michael D. Joehnk, Ph.D., CFA – Arizona State University

Randall S. Billingsley, Ph.D., FRM, CFA – Virginia Tech

PERSONAL FINANCIAL PLANNING

12th Edit ion

© 2011, 2008 South-Western, Cengage Learning

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Personal Financial Planning, Twelfth Edition

Lawrence J. Gitman, Michael D. Joehnk, Randall S. Billingsley

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iv Brief Contents

Preface, ix About the Authors, xx

PART 1 FOUNDATIONS OF FINANCIAL PLANNING, 1 Chapter 1 Understanding the Financial Planning Process, 2 Chapter 2 Developing Your Financial Statements and Plans, 39 Chapter 3 Preparing Your Taxes, 75

PART 2 MANAGING BASIC ASSETS, 108 Chapter 4 Managing Your Cash and Savings, 109 Chapter 5 Making Automobile and Housing Decisions, 141

PART 3 MANAGING CREDIT, 186 Chapter 6 Using Credit, 187 Chapter 7 Using Consumer Loans, 224

PART 4 MANAGING INSURANCE NEEDS, 254 Chapter 8 Insuring Your Life, 255 Chapter 9 Insuring Your Health, 289 Chapter 10 Protecting Your Property, 320

PART 5 MANAGING INVESTMENTS, 349 Chapter 11 Investment Planning, 350 Chapter 12 Investing in Stocks and Bonds, 394 Chapter 13 Investing in Mutual Funds and Real Estate, 433

PART 6 RETIREMENT AND ESTATE PLANNING, 472 Chapter 14 Planning for Retirement, 472 Chapter 15 Preserving Your Estate, 509

Appendix A Table of Future Value Factors, 533 Appendix B Table of Future Value Annuity Factors, 533 Appendix C Table of Present Value Factors, 544 Appendix D Table of Present Value Annuity Factors, 544 Appendix E Using a Financial Calculator, 545

Index, 547

Brief Contents

Contents v

Preface, ix About the Authors, xx

PART 1 FOUNDATIONS OF FINANCIAL PLANNING, 1

CHAPTER 1 Understanding the Financial Planning Process, 2 The Rewards of Sound Financial Planning, 2 The Personal Financial Planning Process, 7 WORKSHEET 1.1 Summary of Personal Financial Goals, 14 From Goals to Plans: A Lifetime of Planning, 14 WORKSHEET 1.2 Analyzing the Benefit of a Second Income, 20 The Planning Environment, 27 What Determines Your Personal Income?, 31

CHAPTER 2 Developing Your Financial Statements and Plans, 39 Mapping Out Your Financial Future, 39 The Balance Sheet: How Much Are You Worth Today?, 41 WORKSHEET 2.1 Balance Sheet for Bob and Cathy Case, 43 The Income and Expense Statement: What We Earn and Where It Goes, 46 WORKSHEET 2.2 Income and Expense Statement for Bob and Cathy Case, 48 Using Your Personal Financial Statements, 52 Cash In and Cash Out: Preparing and Using Budgets, 56 WORKSHEET 2.3 The Cases’ Annual Cash Budget by Month, 58 WORKSHEET 2.4 The Cases’ Budget Control Schedule for January, February, and March 2011, 63 The Time Value of Money: Putting a Dollar Value on Financial Goals, 63

CHAPTER 3 Preparing Your Taxes, 75 Understanding Federal Income Tax Principles, 75 It’s Taxable Income That Matters, 79 Calculating and Filing Your Taxes, 85 WORKSHEET 3.1 2008 Tax Return (Form 1040EZ) for Akira Takyama, 90 WORKSHEET 3.2 2008 Tax Return (Form 1040) for the Trimbles, 92 Other Filing Considerations, 96 Effective Tax Planning, 101

PART 2 MANAGING BASIC ASSETS, 108

CHAPTER 4 Managing Your Cash and Savings, 109 The Role of Cash Management in Personal Financial Planning, 109 Today’s Financial Services Marketplace, 111 A Full Menu of Cash Management Products, 114 Maintaining a Checking Account, 122 WORKSHEET 4.1 An Account Reconciliation Form: William Torgeson’s May 2010 Statement, 128 Establishing a Savings Program, 129

Contents

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CHAPTER 5 Making Automobile and Housing Decisions, 141 Buying an Automobile, 141 Leasing a Car, 150 WORKSHEET 5.1 Comparing Elaine Hodges’ Automobile Lease versus Purchase Costs, 153 Meeting Housing Needs: Buy or Rent?, 154 WORKSHEET 5.2 Rent-or-Buy Cost Comparison, 158 How Much Housing Can You Afford?, 159 WORKSHEET 5.3 Home Affordability Analysis for the Ursula and Ernest Schmidt Family, 166 The Home-Buying Process, 168 Financing the Transaction, 173 WORKSHEET 5.4 Mortgage Refinancing Analysis for the D’Angelo Family, 180

PART 3 MANAGING CREDIT, 186

CHAPTER 6 Using Credit, 187 The Basic Concepts of Credit, 187 WORKSHEET 6.1 How’s My Credit?, 194 Credit Cards and Other Types of Open Account Credit, 195 Obtaining and Managing Open Forms of Credit, 205 Using Credit Wisely, 214

CHAPTER 7 Using Consumer Loans, 224 Basic Features of Consumer Loans, 224 Managing Your Credit, 232 WORKSHEET 7.1 Tracking Your Consumer Debt, 235 Single-Payment Loans, 236 Installment Loans, 241 WORKSHEET 7.2 To Borrow or Not to Borrow, 247

PART 4 MANAGING INSURANCE NEEDS, 254

CHAPTER 8 Insuring Your Life, 255 Basic Insurance Concepts, 255 Why Buy Life Insurance?, 257 How Much Life Insurance Is Right for You?, 259 WORKSHEET 8.1 Determining the Klauders' Need for Life Insurance, 263 What Kind of Policy Is Right for You?, 265 Buying Life Insurance, 275 Key Features of Life Insurance Policies, 279

CHAPTER 9 Insuring Your Health, 289 The Importance of Health Insurance Coverage, 289 Health Insurance Plans, 291 Health Insurance Decisions, 297 Medical Expense Coverage and Policy Provisions, 301 WORKSHEET 9.1 Health Insurance Checklist, 302 Long-Term Care Insurance, 308 Disability Income Insurance, 312 WORKSHEET 9.2 Estimating Disability Income Insurance Needs, 313

Contents vii

CHAPTER 10 Protecting Your Property, 320 Basic Principles of Property Insurance, 320 Homeowner’s Insurance, 324 Automobile Insurance, 333 Other Property and Liability Insurance, 342 Buying Insurance and Settling Claims, 343

PART 5 MANAGING INVESTMENTS, 349

CHAPTER 11 Investment Planning, 350 The Objectives and Rewards of Investing, 350 WORKSHEET 11.1 Determining the Amount of Investment Capital, 354 Securities Markets, 358 Making Transactions in the Securities Markets, 365 Becoming an Informed Investor, 371 Online Investing 376 Managing Your Investment Holdings, 381 WORKSHEET 11.2 Keeping Tabs on Your Investment Holdings, 387

CHAPTER 12 Investing in Stocks and Bonds, 394 The Risks and Rewards of Investing, 394 Investing in Common Stock, 401 Investing in Bonds, 415

CHAPTER 13 Investing in Mutual Funds and Real Estate, 433 Mutual Funds: Some Basics, 433 Types of Funds and Fund Services, 445 Making Mutual Fund Investments, 453 Investing in Real Estate, 461

PART 6 RETIREMENT AND ESTATE PLANNING, 472

CHAPTER 14 Planning for Retirement, 473 An Overview of Retirement Planning, 473 WORKSHEET 14.1 Estimating Future Retirement Needs, 477 Social Security, 481 Pension Plans and Retirement Programs, 485 Annuities, 498

CHAPTER 15 Preserving Your Estate, 509 Principles of Estate Planning, 509 Thy Will Be Done . . . , 516 WORKSHEET 15.1 A Checklist of Items to Keep in a Safe-Deposit Box, 523 Trusts, 527 Federal Unified Transfer Taxes, 531 Calculating Estate Taxes, 534 WORKSHEET 15.2 Computing Federal Estate Tax Due, 536 Estate Planning Techniques, 537

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Appendix A Table of Future Value Factors, 543 Appendix B Table of Future Value Annuity Factors, 543 Appendix C Table of Present Value Factors, 544 Appendix D Table of Present Value Annuity Factors, 544 Appendix E Using a Financial Calculator, 545

Index, 547

Preface ix

“Economic Confidence Rebounds” “Crisis on Wall Street as Lehman Totters, Merrill Is Sold, AIG Seeks to Raise Cash” “Rally Spurs Stocks to ’09 Highs” “US Agrees to Rescue Struggling Citigroup” “Bonds Are Looking Better” “Manufacturing Tumbles Globally” “Rethinking Stocks’ Starring Role” “There’s No Such Thing as a ‘Safe’ Investment” “Small Stocks Hit 11-Month High” “Household Wealth Advances by 3.9%”

We’ve all seen these kinds of headlines. They highlight the ever-changing nature of the financial environment in which we live. And could there be a more dramatic example of this dynamic environment than the recent global financial crisis? The crisis offers a potent reminder that personal financial planning is as necessary as it is challenging. Careful planning allows us to adapt to and even thrive in response to changes in the financial environment and the associated changes in our own lives. This book, Personal Financial Planning, Twelfth Edition, provides the framework and tools for preparing personal financial plans that serve as road maps for goal achievement. Personal Financial Planning emphasizes the dynamics of the financial planning process by considering the impact of life changes—birth, marriage, divorce, job and career, and death.

Personal Financial Planning addresses all of the major financial planning issues and problems that individuals and families encounter. It is built around a model that links together all of the major elements of effective money management. All of the latest financial planning tools and techniques are discussed. This comprehensive text is written in a personal style that uses state-of-the-art pedagogy to present the key concepts and procedures used in sound personal financial planning and effective money management. The roles of various financial decisions in the overall personal financial planning process are clearly delineated.

The book serves individuals who are, or will be, actively developing their own personal financial plans. It meets the needs of instructors and students in a first course in personal financial planning (often called “personal finance”) offered at colleges and universities, junior and community colleges, professional certification programs, and continuing education courses. The experiences of individuals and families are used to demonstrate successes and failures in various aspects of personal financial planning. A conversational style and liberal use of examples and worksheets guide students through the material and emphasize important points. The benefits of the book’s readability accrue not only to students but also to their instructors.

MAJOR CHANGES IN THE TWELFTH EDITION The twelfth edition has been thoroughly updated to consider the lessons of the recent global financial crisis in terms of the most up-to-date techniques of contemporary personal financial planning. We emphasize that the key principles of personal finan- cial planning remain valid: save, diversify your investments, watch your expenditures, and borrow carefully. The twelfth edition reflects feedback from past users as well as

Preface

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nonusers, practicing financial planners, students, and our own research. It provides helpful new approaches, expanded coverage in certain areas, streamlined coverage in others, and enhanced pedagogy anchored by a state-of-the-art integrated learning system. The basic organizational structure, topical coverage, superior readability, and useful instructional aids that marked the success of the first 11 editions have been retained and extended. Important changes in this edition are described below, first as general changes and then as specific chapter-by-chapter changes.

Readers will note an obvious key change to the twelfth edition, which is the addition of Professor Randy Billingsley as an author. Randy is a finance professor at Virginia Tech. His research, consulting, and teaching deal with many personal finance topics. We welcome Randy to the author team and appreciate the fresh perspective he brings to it. Continuing users will recognize the positive impact that Randy had on this twelfth edition.

General Changes • The highly regarded Worksheets continue in this edition and, as with the previ-

ous edition, are also available online as part of the Gitman/Joehnk/Billingsley FinanceCentral product. Students have the option of using the Worksheets mul- tiple times and having some of the calculations within the Worksheets completed electronically. All end-of-chapter problems that can be solved using a given work- sheet have an identifying icon and provide the worksheet reference, which directs the student to its application.

• In addition to the Worksheets, Personal Financial Planning Software is available with each new text as part of FinanceCentral. Students will find that the chapter concepts, Worksheets, problems, and cases can be solved with the use of the soft- ware. The Personal Financial Planning Software should help students begin and continue their own financial planning.

• Web-based part-ending cases are included in the package, one for each of the six major parts of the textbook. These cases are provided online as part of FinanceCentral. They have been developed to challenge readers to integrate and develop plans with regard to the major topics covered in the corresponding part of the book.

• The book has been completely updated and redesigned to allow improved presen- tation of each of the text’s pedagogical features.

• The twelfth edition continues to place emphasis on using the Internet. Included are a number of features that either link students to relevant Internet sites or describe how the Internet can be incorporated into the personal financial planning process. The Money Online Internet feature can now be found on the text Web site at www. cengage.com/finance/gitman. Money Online exercises include eight to ten Web addresses followed by a brief paragraph that challenges the reader to go to the site and either research specific information or review the resources available there. All of the Web topics presented within the chapter are intended to reinforce—as well as expand—the reader’s practical grasp of the key concepts, tools, and techniques presented in the chapter. Some Money Online exercises incorporate “Just for Fun!” features, which include one to three Web addresses followed by brief paragraphs that direct the reader to interesting and often entertaining sites to obtain informa- tion, perform an activity, or answer specific questions.

Each chapter also includes a number of Smart Sites, marginal notes that direct students to the companion Web site (www.cengage.com/finance/gitman) for link- ing to the Internet listings that correspond to related topics discussed in the text.

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This element helps keep readers in touch with the Web as they read and study the chapter. In addition, many Web addresses are embedded in the text and exhibits. These Web links are included when referencing a specific company, information provider, or organization, and they provide the reader with a convenient way to learn more about the topic, obtain information, or make inquiries or transactions.

Another source of additional Internet insights is the Money in Action boxes (described in detail below); some of these features focus on technology and include descriptions and links to useful sites on the Internet. This edition’s empha- sis on the Internet is significant and widely present both in the chapter and in the end-of-chapter materials.

• Step-by-step use of a handheld financial calculator to make time value calcu- lations continues to be integrated into relevant discussions in this edition. To improve understanding, relevant keystrokes are highlighted in these demonstra- tions. Basics of the time value of money are introduced in Chapter 2, Developing Your Financial Statements and Plans, and Appendix E now explains how finan- cial calculators can be used to make time value calculations. The use of a finan- cial calculator is reinforced in later chapters, where the time value techniques are applied. For example, using a calculator to find the future value of a deposit given various compounding periods is shown in Chapter 4, Managing Your Cash and Savings, and calculating estimates of future retirement needs is demonstrated in Chapter 14, Planning for Retirement. The inclusion of calculator keystrokes should help the reader learn how to develop financial plans more effectively by using this important tool of the trade.

• The twelfth edition also includes one Money in Action feature for each chapter. Most of these features are new to this edition, some have been revised and updated from the previous edition, and all are drawn from recent articles in the popular press—providing both relevant and timely information. The Money in Action features address a variety of informative topics to help link the text discussions to actual financial planning ideas, experiences, practices, and events—all intended to fully engage readers in the personal financial planning process. The Money in Action features include Money and Happiness (Chapter 1), Small Ways to Save Big (Chapter 2), Finding the Right Tax Preparer for You (Chapter 3), Pros and Cons of Online Banking (Chapter 4), Online Ways to Save Money Buying Cars (Chapter 5), Choosing between a Credit and a Debit Card (Chapter 6), Watch Out for Predatory Lenders (Chapter 7), Filing a Life Insurance Claim (Chapter 8), Health Care Reform and You (Chapter 9), Keeping Your Homeowner’s Insurance Affordable (Chapter 10), How to Build a Portfolio When You’re Just Starting Out (Chapter 11), Investing Lessons from the Financial Crisis (Chapter 12), Choosing Mutual Funds for Your 401(k) Plan: Stars or Dogs? (Chapter 13), Is Your Pension Plan at Risk? (Chapter 14), and Having “The Talk” with Parents—About Estate Planning, That Is (Chapter 15). Each feature contains Critical Thinking Questions that can be used to improve reader understanding.

• The integrated learning system has been refined even more in this edition to help students better anchor their study to a set of chapter learning goals. Each chapter begins with a list of six numbered learning goals, LG1 through LG6. The learning goal numbers are tied to major chapter headings and restated and reviewed point by point in the end-of-chapter summary, financial planning exercises, and Critical Thinking Cases. Another element of this system is the Concept Check questions that appear at the end of each section of the chapter. As students read through the chapters, they can test their understanding of the material in each section. The most effective advanced pedagogical features

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from the previous edition— marginal glossary, Exhibits and Worksheets, and end-of-chapter Financial Planning Exercises and Critical Thinking Cases—have been retained and improved as part of the integrated learning system. Also included at the end of each chapter is Applying Personal Finance—a feature that presents a challenging out-of-class exercise dealing with at least one of the main topics presented in the chapter.

Specific Chapter-by-Chapter Changes Because users often like to know where new material appears, the significant changes that have been made in the twelfth edition are summarized next.

Chapter 1 on understanding the financial planning process has been carefully revised to focus on the most important themes in the book. A new section on manag- ing your finances in tough economic times has been added in light of the recent finan- cial crisis. Special planning concerns have been moved from Chapter 2 to Chapter 1 to allow for a more integrated treatment of the topic. Thus, new emphasis is placed on special planning concerns such as job changes or loss, getting married, having children, the loss of a parent, and taking responsibility for dependent parents. All discussions—including Exhibits and the Go to Smart Sites and Financial Road Sign sidebars—have been refreshed and updated. Sidebar material focuses on assessing current wealth and monitoring it in the future, how to start saving now, getting your financial act together, planning to repay student debt, planning for critical life events, and calculating the cost of a move.

Chapter 2 on developing your financial statements has been restructured, stream- lined, and updated. Calculator keystrokes and time lines continue to appear in dis- cussions of the time value of money. Sidebar discussions include tips for eliminating documents that you don’t need and developing a budget.

Chapter 3 on preparing your taxes has been completely updated to reflect the changes in tax laws, rates, procedures, and forms in effect at the time we revised the chapter. The material emphasizes current tax practices and explains the nature of progressive tax rates, average tax rates, itemized deductions, IRAs, and other types of taxes. The chapter continues to provide readers with sidebar advice on finding commonly missed tax deductions, avoiding common tax-form errors, tax tips, and audit triggers.

Chapter 4 on managing your cash and savings has been revised and updated to consider additional financial instruments as well as issues related to the recent global financial crisis. For example, the change in FDIC deposit insurance during the financial crisis is discussed, and the potential of using I savings bonds to manage inflation risk is considered. The chapter includes the latest return and institutional data, accurately reflecting current market rates and structure. Calculator keystrokes continue to be shown in the discussion of earning interest on your money. Practical sidebar discussions of protecting your personal financial information, tips for safe online banking, making the best use of a safe-deposit box, choosing a new bank, and determining interest on deposits are included in the chapter.

Chapter 5 on making automobile and housing decisions considers new market developments and sources of information. The automobile affordability section includes a discussion of hybrid cars. The information on using the Internet to shop for and buy a car has been updated. The discussion of how to meet housing needs

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considers the recent crisis in real estate markets. An explanation of the nature of real estate short sales has been added in light of their increased use during the financial crisis. Sidebar discussions focus on tips for saving money on a new car purchase, a checklist for negotiating an auto lease, how to decide whether you should buy or lease your next car, questions to answer before buying a home, and top home remodeling project paybacks.

Chapter 6 on consumer credit and credit cards focuses on the positive aspects of using credit and what it takes to build and maintain a strong credit history. New material explores the implications of the Credit Card Act of 2009 for consumers. Emphasis is placed on how FICO scores are used, what goes into them, and steps you can take to build up your own FICO score. Sidebar discussions consider the key determinants of a borrower’s ability to repay a loan, questions to answer before choosing a credit card, effective uses of debit cards, how to keep up your FICO score, how to decide if you should switch credit cards, and key sources of identity theft.

Chapter 7 on using consumer loans analyzes the benefits and uses of consumer credit for both single-payment and installment loans. The discussion concentrates on the key issues surrounding loan provisions, finance charges, and other credit consid- erations. The discussion of student loans has been updated to provide more detail about the terms and provisions of federally sponsored student loans. Sidebars exam- ine how to shop for an auto loan, pitfalls of lending to family or friends, potentially misleading “no interest, no payments” deals, and what lenders look for in reviewing loan applications.

Chapter 8 on insuring your life has been updated. Practical sidebar material appear- ing in this chapter includes questions to ask before buying insurance, the effect of insurance company ownership on premiums, expectations for a life insurance medi- cal exam, unethical insurance sales practices, and how to understand an insurance illustration. Descriptions of Internet resources and advice on buying life insurance online have been updated.

Chapter 9 on insuring your health has been updated to include a discussion of how health care reform could affect the growing cost of health insurance and your insur- ance options. Practical sidebar material includes sources of student health insurance, data on workers taking health care benefits offered by employers, how to save on health insurance, how to choose a health insurance plan, tips for buying long-term care insurance, and tips for reducing the cost of disability income insurance.

Chapter 10 on protecting your property has added a discussion of the challenge of keeping up your insurance in a recession. Practical sidebar discussions offer data on commonly stolen cars, and strategies for avoiding liability as well as advice on what to do when a claim is denied. We continue to emphasize practical advice for reducing homeowner’s insurance premiums, filing auto insurance claims, preventing auto theft, strategies to avoid liability, and obtaining discounts for auto safety and good driving.

Chapter 11 on investment planning is thoroughly revised and updated to consider the impact of the recent financial crisis and key ongoing developments in this area. The material on securities markets reflects recent mergers between the New York Stock Exchange, Euronext, and the American Stock Exchange as well as the merger of NASDAQ and OMX AB. The chapter also now includes exchange traded funds (ETFs) in the list of popular investment vehicles and examines the performance of real estate

xiv Preface

during the recent financial crisis. Updated information is also provided on the perfor- mance of major U.S. stock and bond indices. Sidebars consider the relationship between equity risk premiums and the business cycle, trade execution using electronic commu- nications networks (ECNs), high-frequency (flash) trading, types of limit orders, char- acteristics of successful online investing, and common portfolio management mistakes.

Chapter 12 on investing in stocks and bonds continues to emphasize the risk–return characteristics of these securities. As part of the revision process, all the return behav- ior and security performance material for both stocks and bonds has been updated to reflect the financial crisis. Indeed, a new Money in Action box examines the les- sons of the crisis for investing. The material on agency and mortgage bonds has been expanded in light of their prominent role in the financial crisis. Similarly, the potential role of the bond rating agencies in the financial crisis is noted. Sidebars provide guide- lines for effective investing, data on the largest market value companies, investing myths, how to use equity analyst forecasts, and the use of bonds in a portfolio.

Chapter 13 on investing in mutual funds has expanded the coverage of exchange traded funds and provides updated data on the performance of real estate investment trusts (REITs). All market statistics and performance data have been updated. Sidebars discuss how to choose between exchange traded funds and mutual funds, key rules for mutual fund investors, the use of life-cycle funds, and what to look for in a REIT.

Chapter 14 on planning for retirement is thoroughly updated, and discussion of each of the various retirement/pension programs (including Social Security, company- sponsored plans, and self-directed programs) reflects the latest guidelines, limitations, and requirements, including those contained in the Pension Protection Act of 2006. Also, new material has been added on Section 529 education savings plans. Sidebars discuss tips for making the most of retirement planning, retirement plan reviews, determining whether you are in an integrated pension plan, the nature of the Pension Benefit Guaranty Corporation, the proper care and feeding of your 401(k) plan, and how to determine if an annuity fits your needs.

Chapter 15 on preserving your estate has been updated to reflect the most recent estate tax laws and tax rates. The impact of the uncertainy introduced by the pos- sible elimination of the estate tax exclusion in 2010 is considered. The Worksheet for computing federal estate tax due has been changed to reflect current rules. Valuable links include a comprehensive guide on what to do when a loved one dies and addi- tional information on ethical wills and trusts. Useful sidebar material covers common (incorrect) excuses for not writing a will, tips for choosing a guardian for children, will-writing pointers, and how to use trusts effectively.

ORGANIZATION OF THE BOOK Personal Financial Planning is divided into six parts. Part 1 presents the foundations of personal financial planning, beginning with the financial planning process and then covering financial statements and plans and also taxes. Part 2 concerns the management of basic assets, including cash and savings instruments, automobiles, and housing. Part 3 covers credit management, including the various types of open account borrowing and consumer loans. Part 4 deals with managing insurance needs and considers life insurance, health care insurance, and property insurance. Part 5 covers investments—including stocks, bonds, mutual funds, exchange traded funds, and real estate—and how to make transactions in securities markets. Part 6 is devoted

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to retirement and estate planning. Web-based part cases and CFP® exam questions are available online as part of the Gitman/Joehnk/Billingsley CengageNOW product.

PEDAGOGY Each chapter opens with six learning goals that link the material covered to specific learn- ing outcomes and, as noted earlier, anchor the text’s integrated learning system. Then, at the end of each of the major sections are Concept Check questions that allow readers to confirm their understanding of the material before moving on to the next section.

Each chapter contains a Money in Action feature that consists of brief discus- sions of relevant personal financial planning material that serve to enrich the topical coverage. At the end of each of these features are Critical Thinking Questions. Also in each chapter are several Financial Road Signs, which provide important hints or suggestions to consider when implementing certain parts of a financial plan, such as “Developing a Budget,” “Tips for Safe Online Banking,” “Tips for Saving Money on Your Next New Car Purchase,” “Should You Buy or Lease Your Next Car?,” “Is It Time to Buy a Home?,” “Top 10 Home Remodeling Project Paybacks,” “Using a Debit Card Signature Transaction: The Best of Both Worlds,” “Shopping for an Auto Loan,” “Buying Life Insurance,” “Unethical Insurance Sales Practices,” “Student Health Insurance: Don’t Leave Home without It,” “How to Choose a Health Insurance Plan,” “Tips for Buying Long-Term Care Insurance,” “7 Tips for Reducing the Cost of Disability Income Insurance,” “Keeping Up Your Insurance in a Recession,” “Strategies to Avoid Liability,” “Equity Risk Premiums and the Business Cycle,” “High-Frequency Trading,” “Successful Online Trading,” “On the Road to Effective Investing,” “Equity Analyst Forecasts—Use with Caution,” “ETFs or Mutual Funds?,” “Key Rules for Mutual Fund Investors,” “Life-Cycle Funds: The One-Stop Shopping Solution?,” “What to Look for in a REIT,” “Proper Care and Feeding of Your 401(k),” “Does an Annuity Fit Your Needs?,” “Writing a Will—No Excuses,” and “Choosing a Guardian for Children.”

Worksheets, which are typically filled in and discussed, are included to simplify demonstration of various calculations and procedures and to provide students with helpful materials they can use in managing their own personal finances. The work- sheets are numbered for convenient reference in end-of-chapter problems, and they include descriptive captions. Numerous exhibits, each including a descriptive caption, are used throughout to more fully illustrate key points in the text. Also included in each chapter is a running glossary that appears in the margin and provides brief defi- nitions of all highlighted terms in the accompanying text.

Most chapters contain discussions and illustrations of how both the Internet and the personal computer can be used in various phases of personal financial plan- ning. In addition, each chapter contains as many as eight Smart Sites, each of which describes specific Internet sites that deal with the topic(s) under discussion and enable the reader to broaden his or her understanding of key financial planning concepts. End-of-chapter material includes a Summary, which restates each learning goal and follows it with a brief paragraph that summarizes the material related to it. The next element is Financial Planning Exercises, which include questions and problems that students can use to test their grasp of the material. That’s followed by Applying Personal Finance, which generally involves some type of outside project or exercise. Two Critical Thinking Cases that highlight the important analytical topics and con- cepts are also supplied. Following the cases is the Money Online element that directs students to links to helpful Web addresses, home page descriptions, and a series of Web-related interactive exercises.

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SUPPLEMENTARY MATERIALS Because we recognize the importance of outstanding support materials to the instructor and the student, we have continued to improve and expand our supplements package.

Instructor Supplements CengageNOW Designed by the instructor for the instructor, CengageNOW for Finance is a reli- able, flexible, and easy-to-use online suite of services and resources. CengageNOW for Finance takes the best of current technology tools—including online homework management, an electronic test bank, and course support materials such as online quizzing—to support your course goals and save you significant preparation and grading time!

• Plan student assignments with an easy online homework management component. • Manage your grade book with ease. • Teach today’s student using valuable course support materials. • Reinforce student comprehension with Personalized Study. • Test with an electronic test bank. • Grade automatically for seamless, immediate results.

This powerful, fully integrated online teaching and learning system provides you with the ultimate in flexibility, ease of use, and efficient paths to success, delivering the results you want—NOW!

For more information, visit http://www.cengagenow.com today.

Instructor’s Manual and Test Bank A comprehensive Instructor’s Manual has been prepared to assist the instructor. For each chapter, the manual includes

• An outline • Discussion of major topics • A list of key concepts • Solutions to all Concept Check questions, end-of-chapter Financial Planning

Exercises, and Critical Thinking Cases

The Test Bank has been revised, updated, and expanded. It includes true-false and mul- tiple-choice questions, as well as four to six short problems for nearly every chapter. The Instructor’s Manual has been revised by Peggy Ward at Wichita State University, and the Test Bank has been updated by Wayne Gawlik at Joliet Junior College.

Computerized Test Bank A computerized version of the printed test bank is available in Windows Microsoft Word® featuring Cengage Learning’s computerized test bank program, ExamView. This program has many features that allow the instructor to modify test questions, select items by key words, and scramble tests for multiple class sections online. There is also the option to create your own questions or instructions and print out answer sheets. You can create and administer quizzes online using the Internet, local-area networks, or wide-area networks.

PowerPoint® For instructors who enjoy working with computerized presentations, we have a com- plete lecture presentation in PowerPoint. Available to instructors on the text Web site, each chapter’s file consists of a general outline that includes key concepts and

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key figures and tables from the book. Instructors can easily modify the presentations using PowerPoint’s many features.

Student Supplements Gitman/Joehnk/Billingsley CengageNOW Web site— http://www.cengagenow.com The Gitman/Joehnk/Billingsley CengageNOW site provides a wealth of tools using some of the most advanced technology features available in the personal financial planning course area—all integrated at one location and organized by chapter. The site includes assignable end of chapter homework, testing and the eBook. Please contact your Cengage Learning/South-Western sales representative for more details.