Smith Family Financial Planning Case Solution & Answer

Smith Family Financial Planning Case Study Solution

Investment Analysis

Furthermore, this states that family is under the negative cash flows. However, the increasing complexities have made expenses out of control. On the other hand, the family has been considering to invest $350 annually at the monthly compounded annual return of 5.5%. Furthermore, the family asks for the payment of $100,000.

However, the amount is unrealistic that could not be achieved with thesmall amount of $350. Meanwhile, if the family could invest the $350 monthly for the next nine years,then the Smith family could be able to get $62,000 at the end of theninth year from the investment. Therefore, this might not work for the family, and could not meet with agoal.

However, Amber need this amount for the university education of her oldest son that would get admission in the university after nine years by completing his college studies. However, the return from the investment is good, because, if we calculate the future value of $350 series of 108 payments that would be equally paid every month would be $37,800.

Meanwhile, the investment would be compounded monthly at the rate of 5.5%. Therefore, the family would be able to get around double amount then it would have invested with the equal monthly payments. So, the total at the end of theninthyear would be $62,000, whereas thegoal of Amber is unrealistic to get around $100,000 from the same investment. Indeed, the return on the investment is much better and would be sufficient for the education of her elder son.

Registered Education SavingsPlan (RESP)

The Registered Education Savings Plan (RESP) is thetype of trust where parents could contribute annually, and child would be beneficiary for the plan. However, the advantage of the RESP that it is not tax deductible, and tax would be deducted after the children withdraw the amount when plan has expired or terminated.

Furthermore, the amount would be taxed as per the age of child and his professional status or student. Therefore, he would take benefit of the tax. However, on the other hand, there is also disadvantage that the only cumulative contribution can be made for one beneficiary is $50,000 irrespective of contributors.

Therefore, in this situation family would not be able to achieve their goals of earning $100,000 from the investment. Meanwhile, it is not known how much investment would earn from the contributions made. Therefore, the family might be able to meet its goal and might need another way to achieve the goal.

Furthermore, it can be determined that if the family invest the same amount with an interest rate of 7% or 8%, it would not be able to get the desired amount at the end of theninth year. However, if we analyze the situation, then it can be determined that if the family invest  $570compounded monthly withthe same interest rate of 5.5%, then thefamily could get their desired goal to achieve $100,000 at the end of theninth year.

Meanwhile, if the family invests $455 monthly at the interest rate of 8%, then it would approach the $100,000 for aninth year. However, as we have discussed the Registered Education Savings Plan could not fulfill the needs of the family. Because there is alimit on the maximum contribution of the $50,000, and the contributor does notknow how much beneficiary would get at the time of expiration of termination of the plan.

Consequently, it can be said that if Joel and Amber could work extra and save more money to meet their goals. Since the goal of the amber to get $100,000 is anunrealistic goal that could not be achieved with this little amount. However, the family should go for another alternative to ensure other earnings, and savings as well.

New Credit Card

Furthermore, it can be determined that credit card payments are also being made by the family. The estimated monthlypayment is $174, which becomes around $2,100.This couldbe reduced or eliminated completely. Furthermore, the situation of the Smith’s family is very complicated. Because the family is already under the many liabilities so that it might not be able to meet with the required amount of money.

On the other hand, the offer of another bank that gives credit card on the huge significant rate of 1.2% which means it is not 1.2% annually, it is monthly, so around the annual rate 1.2*12=14.4%. However, it is quite better than the current credit card. It is because the current credit card interest rate is around 21% which is too high as compared to themarket.

Meanwhile, the family is planning togo on the vacation and make other purchases from the new credit card. Indeed, the family is already under the many problems and is also running out of cash. However, if the family could not manage its previous credit card payments, so how would they manage the new credit card with given situations.

Therefore, it is highly anticipated that family has to make savings, and has to make some investment as well. Whereas, Amber may also acquire another new car that would ask for thehuge amount. So, the increasing complexities havemade things very complex for the family. Because, it is highly anticipated that family might face more cash crunched near future, because it would also engage in many other investments and borrowing options.

New Car

Furthermore, Amber has been considering to change the car, but on the other hand, he already owes the car mortgage of $13,500 from the bank. Meanwhile, it is also important to know that family had also made aplan to safe $400 monthly to replace the car, and they could not make it possible due to the cash crunch……………..

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