Smith family financial plan Case Study Solution


The current financial situation of the Smith family is looking good, because the net assets of this family is showing the total balance of around 179,126 dollars. The current assets of this family is around 325,000 dollars,which includes: one car at home and other home furnishing materials. Family’s current assets is containing the amount of around 850 dollars in form of cash, and 1,300 dollars in the form of current account. Also, there are 2,200 dollars, which aredeposited in a savings account. Liabilities include home loan and car loan, and current liabilities are amounting5500 dollars, is an outstanding credit card balance.The family has established several goals as they need to meet their certain objectives, which are described as follows:

  1. The first main objective of the Smith family is to develop a family plan of RESP for their children, and the family has agreed to pay the monthly payments for a total sum of around 100,000 dollars,in order to support the school education of their three children.
  2. The second alternate objective of the Smith family is to have a vacation trip, which requires an estimated amount of approximately 50,000 dollars.
  3. The third subsequent objective of the Smith family is to have a new car for Joel, as his current car isvery old and incurs a huge amount of repair expense on daily basis.
  4. The ultimate desired goal of the family is to have a pension plan for the husband and the wife, for their performance benefit, which is known as the retirement benefit.

As knows that an individual cannot fulfil his or her all desires alone. So, all these desired targets do not seem to be achievable, because the current income of the Smith family is not enough to finance all these desired financial goals. The desired objectives might only be achieved if the Smith family agrees to pay the mortgage and car loan,which representsalmost 29 percent of their net annual income.

By using this strategy, the desired objective of the Smith family might be possible,whichwill make it possible for them to fulfill all their goals. Nevertheless, with these loans and with certain types of saving measures; it mightbe possible for Smith family to achieve goals and RESP savings plan without compromising their mortgage and car loan.

Financial Planning and Implementation

This scenario tells about the total net monthly income of Joel and Amber Smith, which is 4,800 dollars and the cost associated with Joel and Amber Smith is 5,336 dollars. The calculations are shown in Appendix 1 of the document, which has been derived from Exhibit 1 of the case. The Smith family is facing a trickydilemma, which is genuine in this case because ofastronomically immense expenses. The amount in deficit is around536 dollars, which represents almost 11 percent of their income.

The first objective of the Smiths’ financial planning is to reduce their family expenses, otherwise the family cannot meet itslong-term plans, i.e.educationfor their children and the retirement plan of Mr. and Mrs. Smith. Still, the current expenses are above the income limit of the family.Hence, it is not possible for the family to meet their current needs, whichalso makes it questionable for the Smith family to meet their long-term needs, with their current income and expenses.

In the current situation, the Smith family is encountering the dilemma,which represents the negative ending balance of around 536 dollars(deficit balance), but the balance seems favorable due to the last steps of preserving. Total assets of Smiths worth around 329,350 dollars, and total net liabilities amount to approximately150,224 dollars.It means the current assets are higher than the current liabilities. The balance sheet represents the total net assets of around 179,126 dollars.

On the other hand, thenet assets of the family are found to be in positive figure, but their current ratio is not satisfactory. The current family relationship of Smith family represents only 0.75; the family is not even able to pay its current liabilities. The situation puts an immense pressure over the interest expenses of the family, which makes the deficit worse.

In addition to this, it has been found that the family cannot achieve their goals, which are related to their lifestyle and their savings targets, due to immensely bulky loan repayments and deficits in their income as well as the current expenditure of the Smith family ceases to achieve their desired goals.On the contrary, they are getting paid 100 dollars per month to macrocosmic childcare and found the net cash flow to the family for two years, so their total income is in a surplus of 664 dollars, which has been found by deducting 536 dollars from 1200 dollars.

Time Value of Money

The contractual agreeable contract between the subscriber of the contract and the promoter of the contract is a saving plan registered inculcation (RESP) where the subscriber pays monthly, quarterly, semiannual or annual payments to promote the contract. On the other hand, the promoter agrees to pay enriching assistance payments to the recipients, which is designated by the subscriber (RESP).This arrangement tends to work for the benefit of the children’s education. Through this arrangement a promoter contract subscriber makes customary payments to the subscriber with a fine-tuned annual return. Donations can be made by Canada Inculcation Savings Grant (CESG) and many more, who are working in Canada for such contractual acquiescence.

The benefits of going through such contractual arrangement, are as follows:

  1. This is a tax-free zone as payment plans.
  2. Expressions and final payment are tax free in the hands of the beneficiary.
  3. Down payment can be a single payment, after a designated time interval and customary payments to strengthen the inculcation of beneficiaries. (RESP benefits)

School prospectuses are registered in Canada, which additionally contains a subsidy by the federal regime of Canada that has two fundamental components in parts……………………………..


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