You are a financial planner who focuses on helping couples. Two people have just come to see you regarding their financial situation on May 15, 2022. Your job is to review their finances and provide them with courses of action. Background Information Client Name: Kevin and Tyra Marital Status: Married Age: Kevin 35, Tyra 38 Children: Cindy 8, David 2 Address: London, Ontario Personal Financial Details Kevin and Tyra's financial values: Family - spending time together including weekends and celebrating special occasions. Family - their children experiences through travel. Freedom and Flexibility - having the ability to have options, including type of work and when to work. Security - having money saved for travel without putting the family into debt or creating more financial stress. Kevin is an accountant and earns a gross annual salary of $65,000 per year. Kevin has been working on a reduced schedule to be able to assist with the care of his children, David and Cindy, since Tyra has returned to work full-time after her maternity and parental leave. With the help of Tyra's parents, and Kevin's reduced work schedule they can cover the care for David and Cindy at no additional cost. Based on Kevin's most recent tax return he has the following deductions: CPP $3,166; EI $890; Income taxes $12,105 (both Federal and Provincial). Kevin's employer does not provide any other employee benefits. Tyra is a full-time teacher at a private high school. She earns a gross annual salary of $86,000 per year. Based on Tyra's most recent tax return she has the following deductions: CPP $3,166; El $890; Income taxes $18,157 (both Federal and Provincial). Her employer provides life insurance equal to two times her gross salary if she passes away. Tyra gets to work via transit or other ride sharing service. Her average monthly transportation costs total $275. Kevin and Tyra have a car with a current value of $12,000. They purchased the car using cash and were able to negotiate a cash discount on the price. Car expenses (includes gas, oil, other maintenance, licenses, etc.) average $250 per month. The annual car insurance premium is $1,500. They do not anticipate needing to replace the car for the next five years. Kevin and Tyra have a 4-bedroom home. The market value of their home is $799,000 and the mortgage is $539,230. Their monthly mortgage payment is $3,225. The annual property tax is $4,780 and annual home insurance premium is $1,350. They estimate that on average they spend $3,500 a year on home maintenance. The monthly utilities costs are: hydro $140, natural gas $80, water $90. Kevin and Tyra would like to install an inground pool in the backyard when the children are older. They estimate that the pool would cost $45,000 in 5 years. They want to know how much they should save each year to be able to pay for the pool with cash and not use credit if they start at the end of the year. Page 2 of 5 Kevin and Tyra have two bank accounts. They use their joint chequing account for work payroll deposits and to pay family monthly expenses. The balance in the chequing bank account at the end of April was $6,896. They also have a joint savings account at the same bank. The balance at the end of April was $3,905. They use the savings account as part of their emergency savings fund. The total amount of cash withdrawn from their bank accounts for the month of April was $200. This number surprised Kevin and Tyra as they never totaled the monthly amount of cash they were withdrawing from the bank every month. They could not remember how they spent the money except for buying coffees, lunches, children expenses, lotto tickets or socializing over drinks with friends. After discussing it, Kevin and Tyra state that this will continue. After reviewing the monthly statements for their bank accounts and their credit cards, their monthly entertainment expense was $100, and they spend $450 a month eating out. Kevin and Tyra state that their monthly expenses include: groceries $700, clothes and miscellaneous items $350, gym membership $250, communication bundle $130, medical and dental $130 and life insurance premiums of $135. Children expenses including extra-curricular activities, sports, babysitting and miscellaneous averaged $350 a month. Kevin and Tyra are kind and giving people. Over the last year they spent $1,300 in gifts to others and $500 in donations. They enjoy travelling and try to go away on vacation a few times a year. On average, they spend $9,000 per year on vacations. Other incoming funds include annual government child benefits of $3,150 (not taxable). Kevin has a balance of $8,000 on his credit card. The interest rate on the credit card debt is 18.0%. The balance is mainly from the last family vacation three years ago. Tyra has a balance of $9,500 on her credit card. Tyra uses this credit card for various family expenses when the bank account balance is low, in between pay cheques. The balance increased significantly during Tyra's recent maternity leave. The interest rate on the credit card debt is 19.25%. To make things easier, Kevin and Tyra have set-up a reoccurring payment from their chequing account to each of their credit cards in the amount of $175 per month. Kevin and Tyra would like to have the credit card balances paid off in four years. Kevin has a student loan with a balance of $15,000. He has elected to pay this over a 120-month term and the monthly payment is $155. Kevin and Tyra would like to save money for their children's future education costs. They would like to have $30,000 saved for Cindy at age 18 and $33,750 saved for David at age 18. Both Kevin and Tyra contribute $200 monthly to each of their tax-free savings accounts (TFSA). There is an automatic transfer from their bank account to each of their TFSAs. At the end of April, the market value of Kevin's TFSA was $28,600 and Tyra's TFSA was $33,250. They invest the funds in stocks which can be sold quickly in the event of an emergency or if needed. They each have over $40,000 in TFSA contribution room. The purpose of their TFSAs is for emergency savings. Since having a second child, they have needed to take funds out of their TFSA to pay for ongoing monthly expenses. Kevin and Tyra want to maintain their emergency savings fund to cover four months of monthly expenses, however they do not know the total of their current monthly expenses Kevin and Tyra stopped saving for retirement when they had children. As of April, Kevin's registered retirement savings plan (RRSP) had a market value of $51,360 and Tyra's RRSP had a market value of $69,750. The investment holdings are mutual funds. Kevin and Tyra understand the benefits of planning earlier. Both are currently working at companies that do not offer any pension plans or other retirement savings and they know that they need to figure out how to save some of their annual Page 3 of 5 income for retirement savings. Based on previous financial projections, Kevin and Tyra want to have $1.2 million, before-tax, in retirement savings when Tyra is 65 years old. Kevin and Tyra have limited investment knowledge. When they have investment decisions to make, they typically ask their friends for advice. On average, Kevin and Tyra earn a return of 5.5% p.a. on their investments. Kevin's New Job Opportunity Kevin is considering changing jobs. The new opportunity would be a full-time job with a gross annual salary of $97,000. The deductions from his pay would be: CPP $3,500; El $953; Income tax $21,821 (both federal and provincial tax). Other annual deductions from his pay would include 5% of his annual salary, or $4,850 in year one, for the company defined contribution pension plan (employee portion). His employer will match his contribution into the plan and deposit $4,850 in year one on behalf. Kevin's total annual retirement savings from the pension would be $9,700 in year one. Kevin expects his salary to grow annually at 1.5%. The employer provides extended health care benefits and life insurance equal to one time his gross annual salary if he passes away. If Kevin changes jobs, the family need a second car. Kevin found a car that will cost $28,000. The dealership would charge 1.99% APR, compounded monthly with monthly payments at the beginning of the month on the loan for a 5-year term. The insurance on the car will be $2,100 a year and other regular costs such as licences, gas, and maintenance will be $225 a month. The following is a list of expenses the family will incur if Kevin accepts the new job: Daycare cost for David of $7,900 per year until he is age 5 then there will be before and after school care costs. . New before and after school care costs for Cindy of $3,600 per year (in the summer these funds will be used for summer camps). Decrease in medical expenses because of insurance. Increase in clothes for Kevin of $75 each month. Page 4 of 5 REQUIRED Assume that you are reporting and presenting to Kevin and Tyra on June 1, 2022, a couple of weeks after they have come to see you. Part A Ignore Kevin's new job opportunity and answer the following: 1. Construct a monthly cashflow statement as of April 30th, 2022, for Kevin and Tyra. Do a combined cashflow statement ie. one expense amount for the family. (10 marks) 2. Construct a combined net worth statement as of April 30th, 2022, for Kevin and Tyra. (5 marks) 3. Undertake financial ratio analysis and clearly explain what these ratios show for Kevin and Tyra. Analyse the Liquidity, Asset-to-Debt, Investment Assets-to-Total Assets, Debt Payments-to-Net Revenue, and Consumer Debt ratios. (20 marks) 4. Identify Kevin and Tyra's goals. Once you have identified their goals, examine Kevin and Tyra's values, goals, and personal finances. Explain two inconsistencies, if any, you observe between these factors. (10 marks) 5. Kevin and Tyra recently attended a personal finance seminar on how to use an investment loan to save for retirement. The presenter explained how they needed to hold the investments in a non-registered account and that the purpose for taking the loan is to earn income. Would you advise them to use an investment loan for retirement savings? Support your answer by giving two reasons why they could and two reasons why they shouldn't. (10 marks) Part B Assume Kevin accepts the new job opportunity and answer the following: 1. Conduct some analysis to demonstrate the impact on their budget if Kevin accepts the new job opportunity and explain how it impacts their finances. (7 marks) 2. If Kevin accepts the new job opportunity, does it impact the family goals and values? Support your answer. (8 marks) Part C 1. Make three recommendations for Kevin and Tyra regarding their financial situation or financial goals and support your recommendations with analysis. These recommendations will form your presentation. (30 marks) Page 5 of 5 You are a financial planner who focuses on helping couples. Two people have just come to see you regarding their financial situation on May 15, 2022. Your job is to review their finances and provide them with courses of action. Background Information Client Name: Kevin and Tyra Marital Status: Married Age: Kevin 35, Tyra 38 Children: Cindy 8, David 2 Address: London, Ontario Personal Financial Details Kevin and Tyra's financial values: Family - spending time together including weekends and celebrating special occasions. Family - their children experiences through travel. Freedom and Flexibility - having the ability to have options, including type of work and when to work. Security - having money saved for travel without putting the family into debt or creating more financial stress. Kevin is an accountant and earns a gross annual salary of $65,000 per year. Kevin has been working on a reduced schedule to be able to assist with the care of his children, David and Cindy, since Tyra has returned to work full-time after her maternity and parental leave. With the help of Tyra's parents, and Kevin's reduced work schedule they can cover the care for David and Cindy at no additional cost. Based on Kevin's most recent tax return he has the following deductions: CPP $3,166; EI $890; Income taxes $12,105 (both Federal and Provincial). Kevin's employer does not provide any other employee benefits. Tyra is a full-time teacher at a private high school. She earns a gross annual salary of $86,000 per year. Based on Tyra's most recent tax return she has the following deductions: CPP $3,166; El $890; Income taxes $18,157 (both Federal and Provincial). Her employer provides life insurance equal to two times her gross salary if she passes away. Tyra gets to work via transit or other ride sharing service. Her average monthly transportation costs total $275. Kevin and Tyra have a car with a current value of $12,000. They purchased the car using cash and were able to negotiate a cash discount on the price. Car expenses (includes gas, oil, other maintenance, licenses, etc.) average $250 per month. The annual car insurance premium is $1,500. They do not anticipate needing to replace the car for the next five years. Kevin and Tyra have a 4-bedroom home. The market value of their home is $799,000 and the mortgage is $539,230. Their monthly mortgage payment is $3,225. The annual property tax is $4,780 and annual home insurance premium is $1,350. They estimate that on average they spend $3,500 a year on home maintenance. The monthly utilities costs are: hydro $140, natural gas $80, water $90. Kevin and Tyra would like to install an inground pool in the backyard when the children are older. They estimate that the pool would cost $45,000 in 5 years. They want to know how much they should save each year to be able to pay for the pool with cash and not use credit if they start at the end of the year. Page 2 of 5 Kevin and Tyra have two bank accounts. They use their joint chequing account for work payroll deposits and to pay family monthly expenses. The balance in the chequing bank account at the end of April was $6,896. They also have a joint savings account at the same bank. The balance at the end of April was $3,905. They use the savings account as part of their emergency savings fund. The total amount of cash withdrawn from their bank accounts for the month of April was $200. This number surprised Kevin and Tyra as they never totaled the monthly amount of cash they were withdrawing from the bank every month. They could not remember how they spent the money except for buying coffees, lunches, children expenses, lotto tickets or socializing over drinks with friends. After discussing it, Kevin and Tyra state that this will continue. After reviewing the monthly statements for their bank accounts and their credit cards, their monthly entertainment expense was $100, and they spend $450 a month eating out. Kevin and Tyra state that their monthly expenses include: groceries $700, clothes and miscellaneous items $350, gym membership $250, communication bundle $130, medical and dental $130 and life insurance premiums of $135. Children expenses including extra-curricular activities, sports, babysitting and miscellaneous averaged $350 a month. Kevin and Tyra are kind and giving people. Over the last year they spent $1,300 in gifts to others and $500 in donations. They enjoy travelling and try to go away on vacation a few times a year. On average, they spend $9,000 per year on vacations. Other incoming funds include annual government child benefits of $3,150 (not taxable). Kevin has a balance of $8,000 on his credit card. The interest rate on the credit card debt is 18.0%. The balance is mainly from the last family vacation three years ago. Tyra has a balance of $9,500 on her credit card. Tyra uses this credit card for various family expenses when the bank account balance is low, in between pay cheques. The balance increased significantly during Tyra's recent maternity leave. The interest rate on the credit card debt is 19.25%. To make things easier, Kevin and Tyra have set-up a reoccurring payment from their chequing account to each of their credit cards in the amount of $175 per month. Kevin and Tyra would like to have the credit card balances paid off in four years. Kevin has a student loan with a balance of $15,000. He has elected to pay this over a 120-month term and the monthly payment is $155. Kevin and Tyra would like to save money for their children's future education costs. They would like to have $30,000 saved for Cindy at age 18 and $33,750 saved for David at age 18. Both Kevin and Tyra contribute $200 monthly to each of their tax-free savings accounts (TFSA). There is an automatic transfer from their bank account to each of their TFSAs. At the end of April, the market value of Kevin's TFSA was $28,600 and Tyra's TFSA was $33,250. They invest the funds in stocks which can be sold quickly in the event of an emergency or if needed. They each have over $40,000 in TFSA contribution room. The purpose of their TFSAs is for emergency savings. Since having a second child, they have needed to take funds out of their TFSA to pay for ongoing monthly expenses. Kevin and Tyra want to maintain their emergency savings fund to cover four months of monthly expenses, however they do not know the total of their current monthly expenses Kevin and Tyra stopped saving for retirement when they had children. As of April, Kevin's registered retirement savings plan (RRSP) had a market value of $51,360 and Tyra's RRSP had a market value of $69,750. The investment holdings are mutual funds. Kevin and Tyra understand the benefits of planning earlier. Both are currently working at companies that do not offer any pension plans or other retirement savings and they know that they need to figure out how to save some of their annual Page 3 of 5 income for retirement savings. Based on previous financial projections, Kevin and Tyra want to have $1.2 million, before-tax, in retirement savings when Tyra is 65 years old. Kevin and Tyra have limited investment knowledge. When they have investment decisions to make, they typically ask their friends for advice. On average, Kevin and Tyra earn a return of 5.5% p.a. on their investments. Kevin's New Job Opportunity Kevin is considering changing jobs. The new opportunity would be a full-time job with a gross annual salary of $97,000. The deductions from his pay would be: CPP $3,500; El $953; Income tax $21,821 (both federal and provincial tax). Other annual deductions from his pay would include 5% of his annual salary, or $4,850 in year one, for the company defined contribution pension plan (employee portion). His employer will match his contribution into the plan and deposit $4,850 in year one on behalf. Kevin's total annual retirement savings from the pension would be $9,700 in year one. Kevin expects his salary to grow annually at 1.5%. The employer provides extended health care benefits and life insurance equal to one time his gross annual salary if he passes away. If Kevin changes jobs, the family need a second car. Kevin found a car that will cost $28,000. The dealership would charge 1.99% APR, compounded monthly with monthly payments at the beginning of the month on the loan for a 5-year term. The insurance on the car will be $2,100 a year and other regular costs such as licences, gas, and maintenance will be $225 a month. The following is a list of expenses the family will incur if Kevin accepts the new job: Daycare cost for David of $7,900 per year until he is age 5 then there will be before and after school care costs. . New before and after school care costs for Cindy of $3,600 per year (in the summer these funds will be used for summer camps). Decrease in medical expenses because of insurance. Increase in clothes for Kevin of $75 each month. Page 4 of 5 REQUIRED Assume that you are reporting and presenting to Kevin and Tyra on June 1, 2022, a couple of weeks after they have come to see you. Part A Ignore Kevin's new job opportunity and answer the following: 1. Construct a monthly cashflow statement as of April 30th, 2022, for Kevin and Tyra. Do a combined cashflow statement ie. one expense amount for the family. (10 marks) 2. Construct a combined net worth statement as of April 30th, 2022, for Kevin and Tyra. (5 marks) 3. Undertake financial ratio analysis and clearly explain what these ratios show for Kevin and Tyra. Analyse the Liquidity, Asset-to-Debt, Investment Assets-to-Total Assets, Debt Payments-to-Net Revenue, and Consumer Debt ratios. (20 marks) 4. Identify Kevin and Tyra's goals. Once you have identified their goals, examine Kevin and Tyra's values, goals, and personal finances. Explain two inconsistencies, if any, you observe between these factors. (10 marks) 5. Kevin and Tyra recently attended a personal finance seminar on how to use an investment loan to save for retirement. The presenter explained how they needed to hold the investments in a non-registered account and that the purpose for taking the loan is to earn income. Would you advise them to use an investment loan for retirement savings? Support your answer by giving two reasons why they could and two reasons why they shouldn't. (10 marks) Part B Assume Kevin accepts the new job opportunity and answer the following: 1. Conduct some analysis to demonstrate the impact on their budget if Kevin accepts the new job opportunity and explain how it impacts their finances. (7 marks) 2. If Kevin accepts the new job opportunity, does it impact the family goals and values? Support your answer. (8 marks) Part C 1. Make three recommendations for Kevin and Tyra regarding their financial situation or financial goals and support your recommendations with analysis. These recommendations will form your presentation. (30 marks) Page 5 of 5