Solution Manual For Personal Finance 7th Edition Jeff Madura
Solution Manual For Personal Finance 7th Edition Jeff Madura
Solution Manual For Personal Finance 7th Edition Jeff Madura
Chapter 1
Overview of a Financial Plan
Chapter Overview
Every individual and family needs to develop a financial plan to make the best use of resources to achieve
financial goals. Financial planning will help them clarify their goals and ensure that spending, financing,
and investing decisions are aligned with those goals.
Chapter 1 discusses the benefits of financial planning. Sound financial planning enables you to create
greater wealth over time and it also helps you make career decisions that have a lasting impact on your
finances. Several types of financial decisions are listed with two individuals making different decisions
about choice of major and college. Students will understand how to make their own financial planning
decisions, judge the advice of financial advisers, and evaluate the career of financial adviser.
This chapter also focuses on how the choice of career and skills you develop on the job impact your
income level. Organizations pay workers based on their qualifications and how those qualifications fit the
organization’s needs. Personal finance skills transfer well to the job market. Discipline, initiative, and self-
management skills developed through sound financial planning are all skills that employers demand.
In addition, this chapter briefly discusses the six component plans that makeup the overall financial plan.
These components are budgeting and tax planning, managing liquidity, planning and financing large
purchases, protecting wealth and income through various types of insurance plans, investing money, and
retirement and estate planning. Different life events quite often necessitate a change in the financial plan
and goals.
Each component of a financial plan impacts cash inflows and outflows, and all the components are
interrelated. Understanding these relationships is the key to creating and following a personal financial
plan. Your budget identifies cash inflows and outflows and helps determine liquidity needs. Your
financing decisions determine monthly payments and protecting your wealth requires cash outflows, both
of which feed back into your budget. Investments and retirement planning require living today on less than
you earn in order to have funds for future consumption (i.e., to invest today).
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© 2020 Pearson
© 2020Education,
Pearson Education,
Inc. Inc.
CopyrightCopyright
© 2020 Pearson
© 2020Education,
Pearson Education,
Inc. Inc.
2 Madura • Personal Finance, Seventh Edition Chapter 1 Overview of a Financial Plan 2
Chapter Objectives
The objectives of this chapter are to:
Explain how personal finance enhances your wealth.
Explain how personal finance enhances your job marketability.
Identify the key components of a financial plan.
Explain how financial planning affects your cash flows.
Outline the steps involved in developing your financial plan.
Teaching Tips
1. Discuss this quote with students: “Most people don’t plan to fail; they fail to plan.” Ask students
for examples of situations (financial or otherwise) where they have seen this happen. Guide the
discussion toward financial matters.
2. Compare financial planning to planning a trip.
Steps in Financial Planning Steps in Planning a Trip
Set goals Decide where you are going
Determine your current financial position Locate your home on the map
Identify and evaluate alternative plans Identify and evaluate alternate routes
Choose and implement a plan Pick a route and start the journey
Evaluate plan Is the trip going smoothly?
Revise plan as needed Road construction causes major delays,
so you pick an alternate route
3. Many younger students have difficulty in recognizing the benefits of devising a financial plan now
and saving for the future at a young age. The compounding of money can be easily demonstrated
using the “Rule of 72.” The Rule of 72 can be used as an indicator of how long it will take a single
sum of money to double in value at a given interest rate or rate of return percentage. The length of
time is calculated by dividing 72 by the interest rate. For instance, at 8% a sum of money would
double every nine years. Provide this example for students:
What if your parents had been able to invest $1,000 at 8% the day you were born?
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© 2020 Pearson
© 2020Education,
Pearson Education,
Inc. Inc.
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The knowledge of the secrecy problem gained by most of these
lawmakers and lawyers has been understandably confined to their
experiences with one or two committees, whereas I have had the
opportunity to become aware of the day-to-day activities of nearly all the
committees. For that reason, and because of my alarm at the public apathy
over government secrecy, I have decided to set the whole story down in one
place. Most of the story is taken from the official records of congressional
committees—the sworn testimony, the correspondence with government
agencies, and the official reports of Senate and House investigators. As
much as possible, I have put it together in chronological, narrative form so
that the reader may discover, as I did, how the abuse of government secrecy
has spread and just how vast and serious the scope of it has become. At the
end of the book I will make some recommendations that I hope may serve
as a guide to eliminating this serious threat to our democratic form of
government.
CHAPTER II