For this assignment, you will financially plan the rest of your life. You will be able to make choices about certain aspects, but there are two unbreakable rules: Rule #1: You must always spend enough money for food, clothing, transportation, shelter, furniture, health and personal care, phone/internet, recreation and miscellaneous expenses. Rule #2: You must die debt-free. Everyone will start at the same starting point. Where you end up is up to you. For simplicity, we will assume there is no inflation. Your income will increase at 2% per year (years in parental leave don't count). After 10 years in the same job, your income will increase at 3% per year. In addition to student loans, mortgages and car loans, you may have debt of up to 50% of your income in any year, at an interest rate of 8% per year, compounded monthly. You have no savings and no debt. If you Start: At age 25, you graduate from the live at home, you're moving out. Food: The cost of food for one adult is $340 per month. Clothing: The cost of clothing for one adult is $130 per month. Shelter: You have the choice of renting or buying. You must buy a house before age 45, and keep it until the mortgage is paid off. You can switch back to renting after this point. Rental option: Rent is $1100 per month. Utilities are an extra $100 per month. Buy option: The cost of a house is $300,000, and you will need to put down a minimum of 10% as a down payment (you can put more towards your down payment if you choose). Your down payment must come entirely from your savings. You also incur transaction costs of $5,000, paid upfront from your savings. Assume the interest rate on your mortgage is always 5% per year compounded semi-annually, amortized over 25 years. Once per year you have the option of paying extra money directly towards the principal of your mortgage. There is no limit to the size of this payment. Utilities, insurance and upkeep for your house are an extra $350 per month. Property taxes are $2500 per year, which you will pay in equal monthly payments. If you sell your house, you receive the purchase price and pay down the principal on your mortgage. Furniture: You spend $1200 per year on furnishings and equipment, paid in equal monthly instalments. Health and personal care: You spend $2400 per year on health and personal care, paid in equal monthly instalments. Transportation: You can choose your transportation method from the following, and may switch to a different option at any time. You must buy at least one car before you retire. Bike: upfront cost of $300, no monthly payments. Yearly maintenance cost of $30. Your bike stops working after 10 years (you may buy a new one). Bus: $85/month Used Car: purchase price of $7500. Monthly cost of $450 on fuel, license, insurance, and maintenance. Your car stops working after 6 years. New Car: purchase price of $20,000. Monthly cost of $400 on fuel, license, insurance, and maintenance. Your car stops working after 12 years. Fancy Car: purchase price of $50,000. Monthly cost of $500 on fuel, license, insurance, and maintenance. Your car stops working after 12 years. For all cars, you incur a monthly cost of $150 on parking for work. You may finance your car with a 5-year car loan, at 8% per year compounded monthly. Phone/Internet: Can't live without this, can we? You like fast internet and your streaming subscriptions are included. You also have a data plan and always have the latest phone. Cost of $250 per month. Recreation: You spend $100 per month on recreation. Pets (Optional): You can have as many pets as you want. Cost of $75 per month per pet. Cost of $300 per month per pet while travelling. Miscellaneous: You spend $150 per month on miscellaneous expenses. Savings/Investments: Assume all your savings are held in a tax-free savings account with no contribution limit. It is invested in the market index, earning 5% per year, compounded annually. You may contribute or withdraw from this account at any time. Remember that you can also borrow money (see above). Travel: You must take at least one 2-month trip during your lifetime (you can take as many as you want, and you can go for longer than 2 months). During your trip you will not earn employment income, and you will not pay utilities or transportation costs. The monthly cost of the trip is $5000 per adult and $2500 per child. You must bring your spouse and any children under the age of 15. Career: You can start your career right after U of W. Earn $40,000 per year before taxes. Or: Go back to school for 3 more years while earning no income and paying tuition of $8,000 per year. You must take out student loans to pay for all of your expenses, including tuition and all costs of living. Loan interest is 8% per year, compounded monthly, but only starts accumulating 6 months after you finish school. Once you graduate, earn $50,000 per year before taxes. Income Taxes: On income under $50,000, pay 25%. On income between $50,000 - $90,000, pay 35%. On income over $90,000, pay 45%. No deductions. Taxes are paid monthly. Example: Say you make $100,000 per year. Your taxes are calculated as follows: $50,000 x 25% = $12,500 $90,000 - $50,000 = $40,000. $40,000 x 35% = $14,000 $100,000 - $90,000 = $10,000. $10,000 x 45% = $4,500 Total taxes paid = $12,500+ $14,000+ $4,500 = $31,000 per year. Marriage: you decide to get married at age 30 (sorry if this isn't actually in your plans, tough luck. All marriages in this class have been arranged). The net cost of your wedding, after receiving gifts, is $20,000, paid in the first month of the year. You and your spouse will now combine incomes. Assume your spouse earns the same income as you when you get married. You will now have a combined income and combined expenses for every category except shelter and furniture. Your shelter and furniture costs do not change (so if you are renting, your rent and utilities payments are the same as before you were married), but your spouse will require transportation, and chooses the same option as you. Your spouse has no savings and no debt. Note: Even though your incomes are combined, you will pay taxes separately on your respective incomes. Family: Between ages 30-40, you have 1-4 children (sorry if kids weren't in your life plans, accidents happen! Or, you and your partner decide to adopt after seeing a Netflix special on babies and you just have to have one. Whatever seems appropriate for your life). You choose the exact number and when they arrive. Assume each child arrives in a different year. One of you or your spouse must take parental leave for 6-12 months (you choose how long) and receive 50% of your regular income. When neither you or your spouse is on parental leave, you incur childcare costs of $1000 per month, per child, until the child is 6 years old. If, for example, you have a second child and take parental leave, you do not incur this childcare cost for any child while on leave. After the age of 6, you enrol each child in after-school activities at a cost of $250 per month. Once you have a child, you must use a car until all of your children are over 18. Each child adds 50% of one adult's current food and clothing costs. You are responsible for these costs for 18 years after the child is born. If you are renting, each child also adds 20% to your current rental costs, since you will need more space. If you have more than 1 child, you will have to buy a larger house, which costs 30% more than the current house price for the first home (above). Your current mortgage carries over, and the difference in house prices is added to the principal of your current mortgage. Every child adds a one-time furniture/clothing/diaper cost of $2000, paid when the child is born. Starting at age 30, every month in which you have no children, you will spend an extra $300 on dates with your spouse. This cost disappears when your first child arrives. Divorce: If you are doing this assignment individually, you get divorced at age 45. If you are doing this assignment as a group, stay married. If you get divorced, assume you sell your house and you receive half (the mortgage debt is also split in half). You will need new accommodations and new furniture. Your children live with your spouse, but you will continue to pay half of the expenses for your children until they turn 18. You will pay additional child support of $300 per month, per child. Retirement: Ages 55-70. Choose to retire in any one of these years. Once retired, you no longer earn employment income, and must live off your savings (CPP ran out before you retired). Your spouse will retire at the same time as you. End: You live until age 85, at which point you can either have spent all of your money, or you may choose to leave an inheritance to your children or the charity of your choice. For this assignment, you will financially plan the rest of your life. You will be able to make choices about certain aspects, but there are two unbreakable rules: Rule #1: You must always spend enough money for food, clothing, transportation, shelter, furniture, health and personal care, phone/internet, recreation and miscellaneous expenses. Rule #2: You must die debt-free. Everyone will start at the same starting point. Where you end up is up to you. For simplicity, we will assume there is no inflation. Your income will increase at 2% per year (years in parental leave don't count). After 10 years in the same job, your income will increase at 3% per year. In addition to student loans, mortgages and car loans, you may have debt of up to 50% of your income in any year, at an interest rate of 8% per year, compounded monthly. You have no savings and no debt. If you Start: At age 25, you graduate from the live at home, you're moving out. Food: The cost of food for one adult is $340 per month. Clothing: The cost of clothing for one adult is $130 per month. Shelter: You have the choice of renting or buying. You must buy a house before age 45, and keep it until the mortgage is paid off. You can switch back to renting after this point. Rental option: Rent is $1100 per month. Utilities are an extra $100 per month. Buy option: The cost of a house is $300,000, and you will need to put down a minimum of 10% as a down payment (you can put more towards your down payment if you choose). Your down payment must come entirely from your savings. You also incur transaction costs of $5,000, paid upfront from your savings. Assume the interest rate on your mortgage is always 5% per year compounded semi-annually, amortized over 25 years. Once per year you have the option of paying extra money directly towards the principal of your mortgage. There is no limit to the size of this payment. Utilities, insurance and upkeep for your house are an extra $350 per month. Property taxes are $2500 per year, which you will pay in equal monthly payments. If you sell your house, you receive the purchase price and pay down the principal on your mortgage. Furniture: You spend $1200 per year on furnishings and equipment, paid in equal monthly instalments. Health and personal care: You spend $2400 per year on health and personal care, paid in equal monthly instalments. Transportation: You can choose your transportation method from the following, and may switch to a different option at any time. You must buy at least one car before you retire. Bike: upfront cost of $300, no monthly payments. Yearly maintenance cost of $30. Your bike stops working after 10 years (you may buy a new one). Bus: $85/month Used Car: purchase price of $7500. Monthly cost of $450 on fuel, license, insurance, and maintenance. Your car stops working after 6 years. New Car: purchase price of $20,000. Monthly cost of $400 on fuel, license, insurance, and maintenance. Your car stops working after 12 years. Fancy Car: purchase price of $50,000. Monthly cost of $500 on fuel, license, insurance, and maintenance. Your car stops working after 12 years. For all cars, you incur a monthly cost of $150 on parking for work. You may finance your car with a 5-year car loan, at 8% per year compounded monthly. Phone/Internet: Can't live without this, can we? You like fast internet and your streaming subscriptions are included. You also have a data plan and always have the latest phone. Cost of $250 per month. Recreation: You spend $100 per month on recreation. Pets (Optional): You can have as many pets as you want. Cost of $75 per month per pet. Cost of $300 per month per pet while travelling. Miscellaneous: You spend $150 per month on miscellaneous expenses. Savings/Investments: Assume all your savings are held in a tax-free savings account with no contribution limit. It is invested in the market index, earning 5% per year, compounded annually. You may contribute or withdraw from this account at any time. Remember that you can also borrow money (see above). Travel: You must take at least one 2-month trip during your lifetime (you can take as many as you want, and you can go for longer than 2 months). During your trip you will not earn employment income, and you will not pay utilities or transportation costs. The monthly cost of the trip is $5000 per adult and $2500 per child. You must bring your spouse and any children under the age of 15. Career: You can start your career right after U of W. Earn $40,000 per year before taxes. Or: Go back to school for 3 more years while earning no income and paying tuition of $8,000 per year. You must take out student loans to pay for all of your expenses, including tuition and all costs of living. Loan interest is 8% per year, compounded monthly, but only starts accumulating 6 months after you finish school. Once you graduate, earn $50,000 per year before taxes. Income Taxes: On income under $50,000, pay 25%. On income between $50,000 - $90,000, pay 35%. On income over $90,000, pay 45%. No deductions. Taxes are paid monthly. Example: Say you make $100,000 per year. Your taxes are calculated as follows: $50,000 x 25% = $12,500 $90,000 - $50,000 = $40,000. $40,000 x 35% = $14,000 $100,000 - $90,000 = $10,000. $10,000 x 45% = $4,500 Total taxes paid = $12,500+ $14,000+ $4,500 = $31,000 per year. Marriage: you decide to get married at age 30 (sorry if this isn't actually in your plans, tough luck. All marriages in this class have been arranged). The net cost of your wedding, after receiving gifts, is $20,000, paid in the first month of the year. You and your spouse will now combine incomes. Assume your spouse earns the same income as you when you get married. You will now have a combined income and combined expenses for every category except shelter and furniture. Your shelter and furniture costs do not change (so if you are renting, your rent and utilities payments are the same as before you were married), but your spouse will require transportation, and chooses the same option as you. Your spouse has no savings and no debt. Note: Even though your incomes are combined, you will pay taxes separately on your respective incomes. Family: Between ages 30-40, you have 1-4 children (sorry if kids weren't in your life plans, accidents happen! Or, you and your partner decide to adopt after seeing a Netflix special on babies and you just have to have one. Whatever seems appropriate for your life). You choose the exact number and when they arrive. Assume each child arrives in a different year. One of you or your spouse must take parental leave for 6-12 months (you choose how long) and receive 50% of your regular income. When neither you or your spouse is on parental leave, you incur childcare costs of $1000 per month, per child, until the child is 6 years old. If, for example, you have a second child and take parental leave, you do not incur this childcare cost for any child while on leave. After the age of 6, you enrol each child in after-school activities at a cost of $250 per month. Once you have a child, you must use a car until all of your children are over 18. Each child adds 50% of one adult's current food and clothing costs. You are responsible for these costs for 18 years after the child is born. If you are renting, each child also adds 20% to your current rental costs, since you will need more space. If you have more than 1 child, you will have to buy a larger house, which costs 30% more than the current house price for the first home (above). Your current mortgage carries over, and the difference in house prices is added to the principal of your current mortgage. Every child adds a one-time furniture/clothing/diaper cost of $2000, paid when the child is born. Starting at age 30, every month in which you have no children, you will spend an extra $300 on dates with your spouse. This cost disappears when your first child arrives. Divorce: If you are doing this assignment individually, you get divorced at age 45. If you are doing this assignment as a group, stay married. If you get divorced, assume you sell your house and you receive half (the mortgage debt is also split in half). You will need new accommodations and new furniture. Your children live with your spouse, but you will continue to pay half of the expenses for your children until they turn 18. You will pay additional child support of $300 per month, per child. Retirement: Ages 55-70. Choose to retire in any one of these years. Once retired, you no longer earn employment income, and must live off your savings (CPP ran out before you retired). Your spouse will retire at the same time as you. End: You live until age 85, at which point you can either have spent all of your money, or you may choose to leave an inheritance to your children or the charity of your choice