Smith Family Financial Plan (A) & (B) Case Study Analysis


The Smith Family Case is about meeting the financial needs as well as financial goals in the forthcoming years as the family needs a future plan to meet the future commitment in relation the expenses incurred on monthly basis, the education expense and other expenses that would be incurred in future.

Currently it is pertinent to note that the Smith Family is confronted with the liquidity crises. Even though, the combined gross family income is amounted to 80000 dollars per year, the cash outflows per month exceeds cash inflows. Joel and Amber Smith was well aware of the emerging liquidity problems but at the same time they had no in-depth understanding and knowledge about where the money goes due to which they faced difficulties and challenges in establishing the clear financial goals and objectives.

Furthermore, the Smith Family prepares its tax returns by themselves and they are not sure whether they are doing it the right way or missing out anything. A logical and detailed analysis is required to be performed for the company so as to align the income of the company with all of its financial plans for three objectives which are as follows;

  • Education of the children
  • Buying a new car and
  • Retirement plan etc.

Smith Family needs tax planning. Tax planning is the logical analysis of their financial situation from a tax perspective, to align financial goals such as child education, plan for retirement and buy a new car with tax efficient planning. Thus, tax planning allows the other elements of a financial plan to interact more effectively by minimizing tax liability or delaying the tax in the future against increased income.

In addition to this, Smith Family also requires financial planning in which a detailedfinancialplan will be necessary for the evaluation of the family’s current and future financial state by using currently known commitments to predict future cash flows, asset values and withdrawal plans. This will include a budget which organizes Family’s finances and it will include a series of steps or specific goals for spending and saving in the future. This plan allocates future income to various types of expenses, such as mortgage payments, child education plan and other utilities, and also reserves some party of income for short-term and long-term savings.

A financial plan is sometimes referred to as an investment plan, but in personal finance a financial plan can focus on other specific areas such as risk management, estates, college, or retirement. Combined with tax planning, financial planning will play an important role in the improvement of current situation of the family.

Current situation

The current balance sheet and income statement of Smith Family is not strong despite the income being $80, 000. Smith family is facing a cash crunch which is the main reason for the family to heavily rely on credit card which is an expensive source of fulfilling the gap of cash shortage.  The net assets of the company totaling $ 179,126 and the family also has current assets of $ 325,000, including both cars one at home and home furnishings. Its current assets containing the amount of $ 850 in a form of cash, and $1,300 in the form of current account and also there are $ 2,200 which is put in a savings account. Liabilities include home loan, car loan and current liabilities 5500 for outstanding credit card.

The Smith family has been confronted with the debt burden, with car loan, credit card payments outstanding as well as mortgage payment. Additionally, the Smith Family became unable to make savings for a new car, children education planning and retirement planning, as they have to pay payments for the mortgages and car loan. Furthermore, the lifestyle and daily expenses of the Smith Family were higher as the over spending on restaurants, eating outside, spending all night outside were the key problems with a lack of savings and being under the burden of burden.

After taking a closer look over the expenses of the Smith Family, it is being analyzed that the Smith Family is spending up to $5400 on restaurants on annual basis which might include eating outside and spending nights outside. Moreover, by not paying the payments of the mortgage that are outstanding, Smith Family is incurring huge interest payment on these mortgages. The current outstanding mortgage amounts $130,924 with annual interest rate of 6.5 percent semi-annually which in turntranslates into 6.60% effective interest rate, an expected outflow of $8640 per annum.

Issues and Opportunities

Key Issues

Over dependence on Credit Card

For the Smith Family Case, the financials which includes income statements and the balance sheet are based on the current inflows and outflows of the family and on their current assets as well as current liabilities have been prepared as shown in the Appendix A. The analysis of the financials of the company shows that the current financial condition is not good. The outflows for the company are greater as compared to the inflows of the family.

In addition to this, another issue faced by the Smith Family is due to the dependence of the Smith Family on the credit card as a source of cash due to which the family is facing the cash crunch. Credit card is an expensive source of financing for the family and this extra debt is putting more burden over the inflows of the company which is the total monthly income of $80000. In addition to the burden of the payment of the credit card for the family, the family is obliged to make payment of the outstanding mortgage loan and the car loan. This in turn has puts extra burden of debt over the family.

Mortgage payment

Apart from this, as the company had taken mortgage worth $200000 to buy the house and did not make payments of the mortgage, therefore, with the passage of time, the interest payments on this mortgage are increasing significantly for the family. The current outstanding mortgage balance for the family to be paid is $130,924 with a semi-annual interest rate of 6.5% which translates into 6.60% effective interest rate, making an expected outflow of $8640 per annum for the family which is unavoidable and significant.

Registered Educations Savings Plan

Further, the Registered Educations Savings Plan has not been opted by family which is basically a contract in Canada between the parents and the individual. Moreover, the credit card limit has been exhausted for the Smith Family and the family has been paying 21.9 percent interest on a monthly basis on a compounding basison its credit card. In addition, the savings of the family that has been invested yield a 4.9 percent interest for the Smith Family which is considerably lower as compared to the interest rate which is applicable on the credit card.

Lifestyle of Family Smit

Moreover, the life style of the living of the Smith Family also seems to be one of the contributing factor to the increased cash problems as the monthly expenses show expenses for restaurants and other expenditures also. The Smith Family has been payingconsiderable amount of money on outing as $5400 are spent on outside dinners or might be night out expenses incurred by the family.These all burdens make it challenging and difficult for the family to save any income so that they could save the money, buy a new car, plan the future education of their children and develop a retirement plan. Altogether, these emerging issues have resulted in financial distress and problems being faced by the Smith Family.


The Smith Family has some opportunities which could be exploited and captured to lower the financial burden and distress which are as follows;

Contribution to the Registered Retirement Savings Plan (RRSP)

The family could exploit the opportunity of the contribution to the Registered Retirement Savings Plan (RRSP) as the contributions are tax deferred which demonstrates that the family has to pay the tax whenever they withdraws it. It would also lower the taxable income for the year in which the money reaches to the annual limit. Under this contract, in which the family would have the opportunity to name one or more beneficiaries which are your children such as Luke, Lori and Landon.

In addition to this, the Smith Family would have to agree to make contributions for them, as well as the promoter which is a Canadian Government agrees to pay educational assistance payments (EAPs) to your children. The family could be benefited from the fact that the Registered Education Savings Plan enable investments to benefit from tax-free compounding.

Change the lifestyle

Another opportunity for the Smith Family is to change the lifestyle as well as try to lower the expenses of Smith Family such as on restaurants, eating outside and spending whole night outstand. In addition, the change in the lifestyle of Smith Family would allow the family to make some investment for the education plans for their children, retirement plan, buy a new car and so forth.

New credit card facility

Furthermore, the family could use new credit card with the lower APR (annual percentage rate of interest). The new credit card with lower APR would lead to the reduced cash burden payment and save money.

Summary of Goals, Needs and Recommendations

The family has established several goals as they need to meet their financial 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 is very old and incurs a huge amount of repair expense on daily basis. 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.

It is advisable to the family to not go on a vacation and pay their reimbursement current credit card. The family should go for investment in a RESP and pay off reimbursement by the remaining surplus in order to reduce the loan interest’s expense. This holiday loan will meet short-term needs due to which long-term can get compromised; therefore, it is advisable for family to go for the long-term needs that are best for the current and future scenario of the family’s supplement ally.

Additionally, the first priority of the Family should be to pay off their credit card dues as soon as possible. The family has an amount of 4,350 dollars in their current account; it is advisable to pay the maximum number of dues of credit cards as soon as possible, because it may increase the surplus of the family to about 90 dollars.

It is recommended and advised for the Smith Family to consider taking the car at lease as it would reduce the burden of cash payment as well as itwould tends to reduce the  expenses on repair and maintenance. In addition to this, the Family shouldopt for Registered Retirement Saving Plan and Registered Retirement Saving Plan as this is used to be saved for retirement. The amount that the Smith Family is willing to put aside amounts $250 per month for their retirement. These recommendations could be opted side by side by the family and also save a lot for the family. Both the options that are buying the new credit card facility and the Registered Retirement Savings Plan are feasible and would allow the Smith Family to save money for retirement and the education of their children.

Personal Information and Financial Assumption

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………………………..


This is just a sample partical work. Please place the order on the website to get your own originally done case solution.

Share This