|
Net worth statements For Jerome & Natasha |
|||
|
Assets |
|||
|
Jerome |
Natasha |
Both |
|
|
Home (FMV) |
7,00,000.00 |
7,00,000.00 |
14,00,000.00 |
|
Personal assets |
16,000.00 |
||
|
RRSP |
1,25,000.00 |
62,201.00 |
1,87,201.00 |
|
Group RRSP (from the previous employer) |
17,275.00 |
17,275.00 |
|
|
Investment in TFSA |
1,500.00 |
20,000.00 |
21,500.00 |
|
DCPP balance |
4,34,000.00 |
4,34,000.00 |
|
|
Family RESP |
85,625.00 |
||
|
Non registered investment |
5,500.00 |
||
|
Balance in Joint chequing account |
4,000.00 |
||
|
21,71,101.00 |
|||
|
Liabilities |
|||
|
Combined mortgage and home equity line of credit |
6,47,000.00 |
||
|
Credit card debt (visa card) |
14,300.00 |
||
|
Credit card debt (Master card) |
6,200.00 |
||
|
6,67,500.00 |
|||
|
Net worth |
15,03,601.00 |
|
Cash flow Statement for Jerome and Natasha |
||
|
Monthly ($) |
Annual ($) |
|
|
Cash inflows |
||
|
Take-home pay – (after deduction of DCPP, group insurance, and taxes but including bonus) |
||
|
Jerome |
||
|
Jan to March |
7,343.08 |
44,058.48 |
|
Apr to December |
7,685.08 |
46,110.48 |
|
Natasha |
||
|
Jan to Aug |
4,692.00 |
37,536.00 |
|
Sept to Dec |
5,034.00 |
20,136.00 |
|
Total cash inflows |
24,754.16 |
1,47,840.96 |
|
Cash Outflows |
||
|
Recurring |
||
|
Property Taxes |
7,850.00 |
|
|
Utilities |
6,707.00 |
|
|
Insurance (Auto, disability, and life) |
650.00 |
7,800.00 |
|
Pool chemical & maintenance |
1,000.00 |
|
|
Lease of 2nd car |
600.00 |
7,200.00 |
|
Cost parking car |
1,500.00 |
|
|
Cost of gas |
6,400.00 |
|
|
Maintenance of Van |
75.00 |
900.00 |
|
Groceries |
9,500.00 |
|
|
Cleaning lady salary |
2,400.00 |
|
|
Fast food & restaurant |
4,500.00 |
|
|
Internet & Telephone |
3,600.00 |
|
|
Personal grooming |
1,400.00 |
|
|
Other miscellaneous expenses |
2,400.00 |
|
|
Family dog maintenance |
1,800.00 |
|
|
Hockey & Soccer fees |
12,000.00 |
|
|
Golf club membership |
6,000.00 |
|
|
Membership fees to engineering & teaching certification bodies (by Natasha) |
1,400.00 |
|
|
Membership fees to engineering & teaching certification bodies (by Jerome) (paid by Office) |
– |
|
|
Non- Recurring |
||
|
Charitable donation |
1,000.00 |
|
|
Clothes |
6,000.00 |
|
|
Christmas tour |
7,000.00 |
|
|
Christmas & Holiday gift |
4,200.00 |
|
|
Debt repayment -Mortgage of house |
3,232.46 |
38,789.52 |
|
Debt repayment -against LOC (only interest) |
8,000.00 |
|
|
Visa Card credit repayment |
425.00 |
5,100.00 |
|
Master Card credit repayment |
186.00 |
2,232.00 |
|
Total Cash outflows |
1,56,678.52 |
|
|
Net cash Surplus/(Deficit) |
(8,837.56) |
Emergency fund: Since the net cash inflows of Jerome & Natasha are negative and they are highly dependent on the line of credit through credit cards, which is not good and they need to maintain an emergency fund to meet any unplanned events and needs.
|
Essential living expenses |
Annual |
Monthly |
For 6 months |
|
Property Taxes |
7,850.00 |
654.17 |
3,925.00 |
|
Utilities |
6,707.00 |
558.92 |
3,353.50 |
|
Insurance (Auto, disability and life) |
7,800.00 |
650.00 |
3,900.00 |
|
Pool chemical & maintenance |
1,000.00 |
83.33 |
500.00 |
|
Lease of 2nd car |
7,200.00 |
600.00 |
3,600.00 |
|
Cost parking car |
1,500.00 |
125.00 |
750.00 |
|
Cost of gas |
6,400.00 |
533.33 |
3,200.00 |
|
Maintenance of Van |
900.00 |
75.00 |
450.00 |
|
Groceries |
9,500.00 |
791.67 |
4,750.00 |
|
Cleaning lady salary |
2,400.00 |
200.00 |
1,200.00 |
|
Fast food & restaurant |
4,500.00 |
375.00 |
2,250.00 |
|
Internet & Telephone |
3,600.00 |
300.00 |
1,800.00 |
|
Personal grooming |
1,400.00 |
116.67 |
700.00 |
|
Other miscellaneous expenses |
2,400.00 |
200.00 |
1,200.00 |
|
Family dog maintenance |
1,800.00 |
150.00 |
900.00 |
|
Hockey & Soccer fees |
12,000.00 |
1,000.00 |
6,000.00 |
|
Golf club membership |
6,000.00 |
500.00 |
3,000.00 |
|
Membership fees to engineering & teaching certification bodies (by Natasha) |
1,400.00 |
116.67 |
700.00 |
|
Clothes |
6,000.00 |
500.00 |
3,000.00 |
|
Total |
90,357.00 |
7,529.75 |
;45,178.50 |
|
Personal assets |
16,000.00 |
|
Investment in TFSA |
21,500.00 |
|
Non registered investment |
5,500.00 |
|
Balance in Joint chequing account |
4,000.00 |
|
Balance inline of credit |
50,000.00 |
|
Total |
97,000.00 |
|
No of months can survive (97000/7529.75) |
|
RRSP |
1,87,201.00 |
|
Group RRSP (from the previous employer) |
17,275.00 |
|
Investment in TFSA |
21,500.00 |
|
DCPP balance |
4,34,000.00 |
|
Family RESP |
85,625.00 |
|
Non registered investment |
5,500.00 |
|
Balance in Joint chequing account |
4,000.00 |
|
Total savings in the form of assets |
;7,55,101.00 |
Total savings is further added up by the contribution by both Jerome and his employer by contributing 5% to the defined contribution plan.
Natasha also contributes 12% of her salary to her defined benefit pension plan.
Therefore, the total savings can be said to be a good way to meet any uncertainty in the future.
|
Combined mortgage and home equity line of credit |
6,47,000.00 |
||
|
Credit card debt (visa card) |
14,300.00 |
||
|
Credit card debt (Master card) |
6,200.00 |
||
|
6,67,500.00 |
|||
|
Total Equity/Net worth |
15,03,601.00 |
||
|
Debt to equity |
44.39% |
The debt to equity showing 44.39% of net worth is subject to covering the debt liability which is not a good sign of financial health to meet the future goals of the education and retirement.
|
Combined mortgage and home equity line of credit |
6,47,000.00 |
|
Credit card debt (visa card) |
14,300.00 |
|
Credit card debt (Master card) |
6,200.00 |
|
Total |
6,67,500.00 |
- Currently they are making minimum payments of visa credit cards.
- For master credit card only paying interest but the principal is still outstanding.
- This is not an obvious way to pay off the debt, especially when such debt carries a high rate of interest like 19% or higher.
- Identify the debt which is carrying a higher rate of interest to prioritize the debt pay off here Master credit card attracts 19.90% interest.
- Identify the cash flows and how to increase the cash flow generation and reduce unnecessary expenses.
- Making a financial budget and sticking to it leads to more revenue-generating assets.
- Both the Children need a high school and university education along with that they want to continue their passion for hockey to keep them fit and boost their confidence level.
- For secondary education $15000 per year would be required for both the kids in a four-year program, for that Max will leave in 3 years and Malcolm in 5 years.
- Jerome and Natasha have saved $85625 in family RESP for the education of kids as of 31st December 2021.
- However, the contributions made are not sufficient to meet the cost of education for Max.
In the given scenario, Jerome and Natasha need to allocate more funds to the Family RESP and opt to reduce some unnecessary spending like holidays gifts and so on to maximize the contribution to the funds.
Needs analysis based on goals
|
a |
Short term needs (For 3 Years) |
||
|
Debt repayment -Mortgage of house |
38789.52 |
||
|
Debt repayment -against LOC (only interest) |
8000 |
||
|
Visa Card credit repayment |
5100 |
||
|
Master Card credit repayment |
2232 |
1,62,364.56 |
|
|
b |
Long term needs (future planning of kids’ studies and retirement) |
||
|
Future kids’ education program of four years (15000*4) |
60000 |
||
|
Liability on death of one spouse |
50000 |
1,10,000.00 |
|
|
c |
Maintenance expenses (Living expenses) (for 3 years) |
(90357*3) |
2,71,071.00 |
|
d |
Resources |
||
|
Jerome Life insurance |
500000 |
||
|
Natasha Life insurance |
500000 |
||
|
family Life insurance |
10000 |
||
|
Jerome group term Life insurance |
25000 |
||
|
Jerome personal accident coverage |
100000 |
11,35,000.00 |
|
|
Insurance Needed (a+b+c-d) |
(5,91,564.44) |
Therefore, life insurance is not needed as the resources to cover the short-term, long-term needs, and maintenance expenses for 3 years.
Since the current life insurance coverage is sufficient to meet the needs for upcoming 3 years and this analysis is required to be done after next 3 years when the insurance policies of jerome and Natasha would expire.
|
Retirement Expenses |
||||
|
Jerome |
Natasha |
Total |
Expenses at the time of retirement (Expenses * [email protected]%, 17 Years) |
|
|
Membership fees |
6000 |
6000 |
-12000 |
-16802.90 |
|
Initiation Fees |
0 |
15000 |
-15000 |
-21003.62 |
|
Medical expenses (increase) |
-3000 |
-4200.72 |
||
|
Cloth expenses |
-3000 |
-4200.72 |
||
|
Car related expenses |
||||
|
Lease |
-7200 |
-10081.74 |
||
|
Cost of Gas |
-6400 |
-8961.55 |
||
|
Cost of parking |
-1500 |
-2100.36 |
||
|
Total |
-48100 |
-67351.61 |
|
PV of annuity (@2%) |
(17 Years) |
1.40 |
|
PV of annuity (@5%) |
(17 Years) |
2.29 |
|
Each Source of Retirement |
|||
|
(Current Value * PVA) |
|||
|
Current Value |
Value on Retirement (PVA) |
Compounded with |
|
|
RRSP |
1,87,201.00 |
429068.12 |
PV of annuity (@5%) |
|
Group RRSP (from previous employer) |
17,275.00 |
39594.62 |
PV of annuity (@5%) |
|
Investment in TFSA |
21,500.00 |
30105.19 |
PV of annuity (@2%) |
|
DCPP balance |
4,34,000.00 |
607704.78 |
PV of annuity (@2%) |
|
Family RESP |
85,625.00 |
119895.67 |
PV of annuity (@2%) |
|
Non registered investment |
5,500.00 |
7701.33 |
PV of annuity (@2%) |
|
Post-retirement benefits |
|||
|
Jerome |
Natasha |
Total |
|
|
Age |
48 |
45 |
|
|
Retirement age |
65 |
62 |
|
|
Years to retire |
17 |
17 |
|
|
Natasha pension benefits |
9625 |
9625 |
|
|
Max CPP |
15000 |
15000 |
30000 |
|
OAS |
8000 |
8000 |
16000 |
|
Total |
55625 |
- Take a comprehensive strategy. It will assist you in lowering your taxes. RRPs, workplace pension plans, company assets TFSAs, real estate, and cash value life insurance are all good options for the investment.
- Invest in growth-oriented or actively traded securities, as capital gains from these investments are tax-free. Make sure that the quantity of trading you undertake in your TFSA account doesn’t cause the Canada Revenue Agency to think you’re running a company.
- Invest in a long-term portfolio. It will assist you with tax savings such as the prospect of charging reduced tax rates in the future and the possibility of increasing tax-deferred compounding.
- Currently Jerome and Natasha have done investment to save the taxes but not to achieve the goals
They can better make investments in other better return generating assets which would leads to higher returns like in blue chip stocks, real estates, Investment funds and better return generating bonds. With investments in such options their future goals would be more realistic as there the investments could fetch return of 7 to 15% per annum and better chances of growth in the fund to beat the inflation and have a good wealth to meet the post retirement life expectations
References
Anderson, B. J., MacGowan, J., Gandhi, S., Infanti, D., Pereira, M., Gandhi, P., & Park, H. (2019). PERSONAL TAX PLANNING: GILTI-INTRODUCTION TO GILTI AND ITS APPLICATION TO US SHAREHOLDERS OF CANADIAN CORPORATIONS. Canadian Tax Journal, 67(2), 411-438.
Borup, N. B., Christiansen, A. L. J., Tovgaard, S. H., & Persson, J. S. (2021, December). Deliberative Technical Debt Management: An Action Research Study. In International Conference on Software Business (pp. 50-65). Springer, Cham.
Croteau, M., & Grant, K. (2021). Estimating the Scale of Angel Investment Activity in Canada: A Comparative Analysis. Journal of Applied Business and Economics, 23(2), 170-meta.
Lynch, A., Best, T., Gutierrez, S. C., & Daily, J. A. (2018). What should I do with my student loans? A proposed strategy for educational debt management. Journal of graduate medical education, 10(1), 11-15.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
