Table Of Content4
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PERSONAL FINANCE
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STUDENT EDITION
NOW WITH MINDTAP
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P F i n 7
personal finance
billingsley + gitman + joehnk
Australia d Brazil d Mexico d Singapore d United Kingdom d United States
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PFIN7 © 2020, 2018 Cengage Learning, Inc.
Randall S. Billingsley, Lawrence J. Gitman,
and Michael D. Joehnk Unless otherwise noted, all content is © Cengage.
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Gitman/Joehnk/BillinGsley
PFin7
Brief Contents
Part 1 Foundations oF Financial Planning
1 Understanding the Financial Planning Process 2
2 Using Financial Statements and Budgets 28
3 Preparing Your Taxes 56
Part 2 Managing Basic assets
4 Managing Your Cash and Savings 84
5 Making Automobile and Housing Decisions 110
Part 3 Managing credit
6 Using Credit 144
7 Using Consumer Loans 172
Part 4 Managing insurance needs
8 Insuring Your Life 198
9 Insuring Your Health 228
10 Protecting Your Property 256
Part 5 Managing investMents
11 Investment Planning 282
12 Investing in Stocks and Bonds 314
13 Investing in Mutual Funds, ETFs, and Real Estate 346
Part 6 retireMent and estate Planning
14 Planning for Retirement 376
15 Preserving Your Estate 404
Appendix A 430
Appendix B 431
Appendix C 432
Appendix D 433
Appendix E 434
Index 436
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Brief Contents iii
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ContentS
About the Authors vii 2-5 Cash In and Cash Out: Preparing and
Using Budgets 41
Acknowledgements ix
2-6 The Time Value of Money: Placing a Dollar Value on
Financial Goals 45
2-7 Inflation and Interest Rates 50
Part 1
3
Foundations oF
Preparing Your Taxes 56
Financial Planning 3-1 Understanding Federal Income Tax Principles 57
3-2 It’s Taxable Income that Matters 60
3-3 Calculating and Filing Your Taxes 65
3-4 Other Filing Considerations 72
3-5 Effective Tax Planning 76
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Understanding the
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1-4 The Planning Environment 19 Carner/
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1-5 What Determines Your Personal Income? 22
4
2
Managing Your Cash and
Using Financial Statements
and Budgets 28 Savings 84
4-1 The Role of Cash Management in Personal
2-1 Mapping Out Your Financial Future 29
Financial Planning 85
2-2 The Balance Sheet: How Much Are You
4-2 Today’s Financial Services Marketplace 87
Worth Today? 30
4-3 A Full Menu of Cash Management Products 90
2-3 The Income and Expense Statement: What We Earn
and Where It Goes 35 4-4 Maintaining a Checking Account 95
2-4 Using Your Personal Financial Statements 39 4-5 Establishing a Savings Program 101
iv Contents
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5
Part 4
Making Automobile and
Housing Decisions 110 Managing
5-1 Buying an Automobile 111
insurance needs
5-2 Leasing a Car 116
5-3 Meeting Housing Needs: Buy or Rent? 118
5-4 How Much Housing Can You Afford? 124
5-5 The Home-Buying Process 132
5-6 Financing the Transaction 135
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Part 3 Shutterstock.co
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Managing credit wpixel.co
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8
Insuring Your Life 198
8-1 Basic Insurance Concepts 199
8-2 Why Buy Life Insurance? 200
8-3 How Much Life Insurance is Right for You? 201
mages 8-4 What Kind of Policy is Right for You? 206
Getty I 8-5 Buying Life Insurance 215
Mark Viker/ 8-6 Key Features of Life Insurance Policies 218
9
Insuring Your Health 228
6
Using Credit 144 9-1 The Importance of Health Insurance
Coverage 229
6-1 The Basic Concepts of Credit 145
9-2 Health Insurance Plans 230
6-2 Credit Cards and Other Types of Open
9-3 Health Insurance Decisions 236
Account Credit 148
9-4 MedIcal Expense Coverage and Policy
6-3 Obtaining and Managing Open Forms of Credit 157
Provisions 240
6-4 Using Credit Wisely 164
9-5 Long-Term-Care Insurance 245
7 9-6 Disability Income Insurance 248
Using Consumer Loans 172
10
7-1 Basic Features of Consumer Loans 173 Protecting Your Property 256
7-2 Managing Your Credit 179
10-1 Basic Principles of Property Insurance 257
7-3 Single-Payment Loans 182
10-2 Homeowner’s Insurance 261
7-4 Installment Loans 187
Contents v
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10-3 Automobile Insurance 268
Part 6
10-4 Other Property and Liability Insurance 274
10-5 Buying Insurance and Settling Claims 275 retireMent and
estate Planning
Part 5
Managing
investMents
mage Bank/Getty Images Cathy Yeulet/123RF
the I 14
me/ Planning for Retirement 376
m
Jan Stro 14-1 An Overview of Retirement Planning 377
14-2 Social Security 383
11 14-3 Pension Plans and Retirement Programs 386
Investment Planning 282
14-4 Annuities 395
11-1 The Objectives and Rewards of Investing 283
15
11-2 Securities Markets 289
Preserving Your Estate 404
11-3 Making Transactions in the Securities Markets 295
15-1 Principles of Estate Planning 405
11-4 Becoming an Informed Investor 299
15-2 Thy Will Be Done… 409
11-5 Online Investing 303
15-3 Trusts 417
11-6 Managing Your Investment Holdings 305
15-4 Federal Unified Transfer Taxes 420
12 15-5 Calculating Estate Taxes 424
Investing in Stocks and
15-6 Estate Planning Techniques 424
Bonds 314
12-1 The Risks and Rewards of Investing 315 Appendix A 430
12-2 Investing in Common Stock 321 Appendix B 431
12-3 Investing in Bonds 331 Appendix C 432
Appendix D 433
13
Investing in Mutual Funds, Appendix E 434
ETFs, and Real Estate 346 Index 436
13-1 Mutual Funds and Exchange Traded Funds:
Some Basics 347
13-2 Types of Funds and Fund Services 355
13-3 Making Mutual Fund and ETF Investments 362
13-4 Investing in Real Estate 368
vi Contents
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ABout the AuthoRS
Randall S. BillingSley is a finance professor in Financial Management, The Financial Review, the
at Virginia Tech. He received his bachelor’s degree in Journal of Financial Planning, the Journal of Risk and
economics from Texas Tech University and received Insurance, the Financial Services Review, the Journal of
both an M.S. in economics and a Ph.D. in finance from Financial Research, Financial Practice and Education,
Texas A&M University. Professor Billingsley holds the the Journal of Financial Education, and other scholarly
Chartered Financial Analyst (CFA), Financial Risk publications.
Manager (FRM), and Certified Rate of Return Analyst His major textbooks include Introduction to Busi-
(CRRA) professional designations. An award-winning ness, co-authored with Carl McDaniel, et. al.; and
teacher at the undergraduate and graduate levels, his Fundamentals of Investing, Thirteenth Edition, which
research, consulting, and teaching focus on investment is co-authored with Michael D. Joehnk and Scott B.
analysis and issues relevant to practicing financial ad- Smart. Gitman and Joehnk also wrote Investment
visors. Formerly a vice-president at the Association Fundamentals: A Guide to Becoming a Knowledgeable
for Investment Management and Research (now the Investor, which was selected as one of 1988’s 10 best
CFA Institute), Professor Billingsley’s published equity personal finance books by Money magazine; and Prin-
valuation case study of Merck & Company was assigned ciples of Managerial Finance, Sixth Brief Edition, co-
reading in the CFA curriculum for several years. In 2006, authored with Chad J. Zutter.
the Wharton School published his book, Understanding An active member of numerous professional organi-
Arbitrage: An Intuitive Approach to Financial Analysis. zations, Professor Gitman is past president of the Acad-
In addition, his research has been published in refereed emy of Financial Services, the San Diego Chapter of the
journals that include the Journal of Portfolio Manage- Financial Executives Institute, the Midwest Finance
ment, the Journal of Banking and Finance, Financial Association, and the FMA National Honor Society. In
Management, the Journal of Financial Research, and addition, he is a Certified Financial Planner® (CFP®).
the Journal of Futures Markets. Professor Billingsley Gitman formerly served as a director on the CFP®
advises the Student-Managed Endowment for Educa- Board of Governors, as vice-president–financial edu-
tional Development (SEED) at Virginia Tech, which cation for the Financial Management Association, and
manages an equity portfolio of about $5 million on be- as director of the San Diego MIT Enterprise Forum.
half of the Virginia Tech Foundation. Gitman has two grown children and lives with his wife
Professor Billingsley’s consulting to date has focused in La Jolla, California, where he is an avid bicyclist.
on two areas of expertise. First, he has acted extensively
michael d. Joehnk is an emeritus professor of
as an expert witness on financial issues. Second, he has
finance at Arizona State University. In addition to his ac-
taught seminars and published materials that prepare in-
ademic appointments at ASU, Professor Joehnk spent a
vestment professionals for the CFA examinations. This
year (1999) as a visiting professor of finance at the Univer-
has afforded him the opportunity to explore the relation-
sity of Otago in New Zealand. He received his bachelor’s
ships among diverse areas of investment analysis. His
and Ph.D. degrees from the University of Arizona and
consulting endeavors have taken him across the United
his M.B.A. from Arizona State University. A Chartered
States and to Canada, Europe, and Asia. A primary goal of
Financial Analyst (CFA), he has served as a member
Professor Billingsley’s consulting is to apply the findings of
of the Candidate Curriculum Committee and of the
academic financial research to practical investment deci-
Council of Examiners of the Institute of Chartered
sion making and personal financial planning.
Financial Analysts. He has also served as a director of the
lawRence J. gitman is an emeritus professor of Phoenix Society of Financial Analysts and as secretary/
finance at San Diego State University. He received his treasurer of the Western Finance Association, and he was
bachelor’s degree from Purdue University, his M.B.A. elected to two terms as a vice-president of the Financial
from the University of Dayton, and his Ph.D. from the Management Association. Professor Joehnk is the author
University of Cincinnati. Professor Gitman is a prolific or co-author of some 50 articles, five books, and numer-
textbook author and has more than 50 articles appearing ous monographs. His articles have appeared in Financial
About the Authors vii
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