Laura Smith, 35 years old, is a lawyer in the office of the Attorney General Alberta. Her husband, Stephen Smith, 32 years old, is a car salesperson. They adopted twins, Faith and Gaia, at age one, three years ago. They do not plan to have more children.

Laura earns $85,000 per year with $51,000 of that being take-home pay. Her deductions provide full family health coverage (medical, drugs, dentist, optical) with $100 deductible per family member each year. She has disability insurance for 70% of her salary and three times her salary in life insurance. Her marginal tax rate is 40%. She is good at her job, and well regarded by her superiors. She already works some long hours, staying late some nights and taking work home on weekends. To move up in the organization, she would have to work even more hours, and she refuses to sacrifice her family.

Stephen’s commission income is quite variable, ranging from $25,000 to $60,000 in recent years. Last year he grossed $60,000 for the year, with take-home pay of $42,000. He has no benefits. Unlike many commission salespersons, he has no significant expenses that are not covered by the dealership. He expects he will make $55,000 to $60,000 next year. His job is fairly secure as long as the dealership doesn’t fail. The owners of the dealership are fairly conservative and he thinks they are in good financial shape. Stephen usually works one day on the weekends, and one or two evenings a week, but also takes one weekday off. His marginal tax rate varies but it was 30% last year.

The house is in good shape and is located in a nice neighborhood in Edmonton, two kilometers from the Government building where Laura works and four kilometers from Stephen’s job. They just renewed the mortgage for five years at 6.45% with a 20-year amortization. Their current mortgage payments are $1,950 per month. They spent $4,000 on taxes and utilities last year, and $2,000 on maintenance and insurance.

Other than the items already noted, they used cheques and cash withdrawals from the chequing account to pay another $12,000 of expenses last year. Food, groceries and take-out food orders were the biggest item but they aren’t sure what else was included.

They used several other credit cards for a total of $22,000 last year. This included clothing, household purchases, furniture, entertainment, life insurance and vacations. They take two or three holidays per year. Last year they spent one vacation in Hawaii (without children), one week at Whistler ski resort, and a week camping.

They own two cars. Laura has a 2021 Toyota Sienna, which she paid for $36,000 that will last for perhaps five more years. Stephen drives a relatively a 2003 Cadillac CTS loaded with all the extras. He got it for only $30,000 originally because he works for a GM dealer. He expects to replace it with a Cadillac CT-4 this year.

The balance shown is the current amount owing. They spent about $8,000 last year on gasoline, maintenance, insurance and licenses for the cars, all charged on one credit card

They have a housekeeper who does the cleaning, a bit of shopping and cooking and looks after the children. Gaia and Faith will start half-day kindergarten next year. The housekeeper lives in a self-contained apartment with a separate entrance at the side of the house. Her salary and benefits cost $20,000 p.a. On the housekeeper’s tax form (T4 slip) they report a taxable benefit of $500 per month for the apartment she occupies. They expect to retain a housekeeper until the children are 12, and then switch to a cleaning service for $150/week. They can’t do without her now, because of their inflexible working hours.

Stephen has a $100,000 term life insurance policy; he currently pays $25 per month for the policy. The securities are a portfolio of oil exploration companies (listed on the TSX Venture Exchange). They pay no dividends but they increased in value by 20% last year.

They have a lot of trouble saving money. They bought the securities before the twins arrived. Their credit card debt has increased in each of the last three years. They don’t keep detailed accounts of their expenses but they have sorted them out a bit by using different credit cards and the chequing account for different things.

They want to retire around the time they turn 60. If Laura stays with the government, she will have a pension in today’s dollars of $45,000 before tax, including both her employer and Canada Pension Plan. Stephen will qualify for the maximum Canada Pension Plan.

They would like to maintain a similar lifestyle in retirement. They are concerned about the possibility that their pension plans will be reduced by government cutbacks or tax claw-backs. They have read that there is some risk that the government won’t be able to pay full Canada Pension Plan in the future because it hasn’t been sufficiently funded and the population of retirees is growing rapidly.

They also want to buy a vacation property in a few years, when their current debts are more manageable. They are thinking of something in the Foothills, in the $250,000 range. They might retire to it and sell the house in Edmonton but it’s too far in the future to be more than an idea.

Here is a list of assets and liabilities that Stephen and Laura provided to you, the value is to the best of their abilities.

Laura and Stephen Smith

Balance Sheet December 31, Last Year

ASSETS Liabilities

Chequing account $1,000 Current Credit card balance $4,000

Car savings account 8,000 Credit card debt at 21% 7,000

Securities 6,000 Car loan 15,000

Two cars, original cost 66,000 Mortgage on house 260,000

House, current market 400,000

TOTAL ASSETS $491,000 TOTAL LIABILITIES $286,000

Instructions: Act as an advisor to Laura and Stephen.

In your analysis and review, your report should contain the following:

1. Note: In your assessment, a review of common financial goals in Exhibit 1-5 is expected.

Create a Net Worth Statement and a Cash Flow Statement for the Smiths. 

Note: Evaluate the current situation for the Smiths using the financial ratios from the Financial Planning Calculations table and provide recommendations.

Net worth statement

Liquid assets

Chequing account balance

Review the current situation with regard to risk management and make recommendations. 

Examine your current investment portfolio and make recommendations. 

Discuss the use of consumer credit or its misuse and make recommendations. 

Select appropriate tax strategies and make recommendations. 

Overall, your report should include: 

• Using external reference material (properly documented with footnotes).
• Proper use of punctuation and spelling.
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