FINS 1150 Fall 2022 Financial Planning Case Study The Yans The Yan family is currently renting...

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FINS 1150 Fall 2022 Financial Planning Case Study The Yans The Yan family is currently renting a decent yellow colored house with a floor space of 4,200 sqf, located in a small town called Coaldale, about 11 kilometers east to the city of Lethbridge. The house is located in the best neighborhood of the town and its current value is $700,000. Eric (28) and Sarah Yan (27) have been married for 3 years. Eric graduated from University of Alberta with a doctoral degree in Physics. He has been working for University of Lethbridge as an assistant professor since graduation. Sarah obtained her diploma at Mount Royal University and was hired last year by Absolute Dental as a dental assistant. Eric's starting salary was $91,000 ($75,000 after tax) two years ago at University of Lethbridge. Sarah did not have much work experience, and her starting salary with Absolute Dental was $54,000 ($46,000 after tax). She has to go back to school to upgrade her skills if she wants to earn better salary. Eric has good extended health benefits covered by Alberta Blue Cross through University of Lethbridge for himself and his family. They pay $1,800 per month in rent and $615 per month in utilities ($150 for cell phones with Fido; $130 for heat(gas); $95 for electricity; $155 for TV and internet with Shaw cable; and $85 for water, garbage, and sewer). This month's Fido and Shaw cable bill have been received but not paid yet. They use three credit cards (TD, CIBC and RBC). The RBC credit card has a feature of 4% cash reward for spending on groceries and gas, but its interest rate is the highest 25.99%. They use RBC credit card for gas, groceries and some miscellaneous spending to maximize the cash reward, and they pay off entirely the balance each month to avoid any interest charge. The current balance on the card is $1,205. Their current unpaid bills also include their gym membership with Twisted Steel $90 and this month's auto insurance. zuslifoly 102 They have one child named Daniel aged 2. They plan to have another child, ideally in two years when Eric's income is higher with the potential promotion to be an associate professor. Before their 2nd child is born, they want to own their own house. The landlord has expressed the interest of selling this yellow house to them at $700,000. They have learned from the landlord that two major costs of possessing this yellow house are the property tax $6,300 annually, and the insurance cost $3,000 annually. They plan on paying 20% down payment to save on the CMHC insurance cost. They do not have substantial savings because University of Lethbridge just experienced a 6-week strike and lock-out during which Eric had to use up all the family's savings to make up for the income loss due to the University lockout. Eric can use his RRSP balance to cover some of the down payment. He has been putting $1,000 a month in a RRSP and currently has $48,000. property at the end of the year. Eric's mother has promised to gift him $100,000 to support the purchase of a new property. They plan on buying the Buying a home is a big step. Eric and Sarah would like to have better control over their financial lives before taking this step. They are satisfied with Eric's good job with decent incomes, yet they are frustrated as they have too much debt. Although they tried their best, they cannot seem to get their credit cards paid off. Eric also has a student loan, and a car loan. It seems that they have no hope of being free of debt payments. 2 They recently sat down and made a list of some of their short to medium term financial goals 1 3 4 They would like to buy a house before having their second child, and Eric's parents coming to Canada They want to stop using credit for things and get their debts (other than mortgage) paid off. They want to become debt free and stay that way. To remain debt free they will have to save for future vehicle purchases Eric does not want their children to have the student loans he has. He would like to be able to pay for 4 years of university tuition and fees for each child. Eric and Sarah are currently busy with work, Daniel, and activities outside work. They don't have the time to figure out what they need to do to achieve their goals so they have decided to seek out a financial planner. To get started their financial planner asked them to provide some information on their financial goals and their current financial situation. Sarah has a student loan with a balance $11,600. She pays $210 per month and the interest rate is 7%. Eric has student loan with a balance of $59,000. He currently pays $600 per month and the interest rate is 6.5%. They have two credit cards besides the RBC one they use for their gas and groceries. Sarah's TD card has a balance of $3,600, she is paying $150 per month and the interest rate is 19.99%. Eric's CIBC card has a balance of $5,900. He is paying $175 per month rate is 1%. and the interest rate is 11.99%. They have a car loan with a balance of $9,400. They pay $540 per month and the interest Eric and Sarah have never really tracked how they spend their money. They estimate that their current monthly expenses medical/dental include the following: groceries and household stuff $670, clothes budget $320, haircuts and personal care $180, expenses not covered by insurance $50, entertainment and eating out $240, health club membership and sports fees $100, hobbies $120, gifts budget $60, charity $50, travel budget $250, auto insurance $185, auto maintenance budget $100, auto fuel and oil changes $350, miscellaneous auto $25, and finally $800 in childcare costs. - Eric contributes 12% of his gross pay to his defined benefit pension plan University Academic Pension Plan (UAPP). The current commuted value of Eric's pension is $60,800. Sarah's employer has a Defined Contribution Pension Plan. $16,500. Sarah contributes 5% of her gross pay and her employer matches his contributions. The current balance in the plan is Eric and Sarah each have a car. Since they both work and have to get Daniel to and from childcare they need to have two vehicles. Eric drives a 2018 Toyota RAV4. He figures the car will last another 10 years and at that time he will buy a used value $10,000 for his car when he replaces it. vehicle for about $35,000 (today's dollars). The car is currently worth about $35,000 but he expects to get a trade-in lans overl Sarah drives a 2014 Dodge Cavaran with a value $13,000. She worries about safety and would like to replace the vehicle when it reaches about 165,000 kilometers which they estimate will be in about 3 years. They figure they will buy a slightly used vehicle and will spend about $18,000 in today's dollars. Based on some research they figure their current vehicle will have a trade-in value of about $2,000 (in today's dollars). Eric and Sarah have a balance of $600 in their chequing account and $200 in cash. Their furniture is worth $7,500, all fully paid for, and Sarah has $8,000 worth of jewelry, which were gifts from Eric's mother on Sarah's wedding day. As a highly educated and self-motivated person, Eric is a true believer of the importance of highquality education to one's life and future career development. He plans to send both of his children to a local private school. The tuition fee for each child is $575 monthly for 12 months for current year. The tuition is expected to increase by 5% each year in the next ten years. The family receives monthly Canada Child Benefit of $390. Eric and Sarah have completed Eric's parents' sponsorship applications, hoping to bring Eric's parents to Canada as permanent residents in 2 years. His parents would be able to babysit their grandson Daniel, which means that the rat childcare cost will be saved. Eric and Sarah do not worry about any additional costs associated with Eric's parents joining in them, because Eric's parents are business entrepreneurs in their home country, and they are self-reliant, having sufficient money to cover their living expenses in Canada. While they are a long way from retirement Eric and Sarah have talked about what life in retirement could look like. They think they would like to travel quite a bit, spend time with grandchildren they hope to have, stay active enjoying outdoor activities on the Sunshine Coast and Vancouver Island in the summer. They expect to be mortgage free by the time they their expenses in retirement will be around $77,700 in today's dollars. retire so the money they spend on their mortgage will go toward their travel and leisure activities. Therefore, they estimate Eric wants to retire at age 65. Eric will be able to retire with a full pension (estimated to start at $73,900 per year in future are 65, so they don't have to take a reduced amount. dollars or $30,100 in today's dollars and increases at 60% of inflation). They don't plan on starting CPP benefits until they FINS 1150 Fall 2022 Financial Planning Case Study The Yans The Yan family is currently renting a decent yellow colored house with a floor space of 4,200 sqf, located in a small town called Coaldale, about 11 kilometers east to the city of Lethbridge. The house is located in the best neighborhood of the town and its current value is $700,000. Eric (28) and Sarah Yan (27) have been married for 3 years. Eric graduated from University of Alberta with a doctoral degree in Physics. He has been working for University of Lethbridge as an assistant professor since graduation. Sarah obtained her diploma at Mount Royal University and was hired last year by Absolute Dental as a dental assistant. Eric's starting salary was $91,000 ($75,000 after tax) two years ago at University of Lethbridge. Sarah did not have much work experience, and her starting salary with Absolute Dental was $54,000 ($46,000 after tax). She has to go back to school to upgrade her skills if she wants to earn better salary. Eric has good extended health benefits covered by Alberta Blue Cross through University of Lethbridge for himself and his family. They pay $1,800 per month in rent and $615 per month in utilities ($150 for cell phones with Fido; $130 for heat(gas); $95 for electricity; $155 for TV and internet with Shaw cable; and $85 for water, garbage, and sewer). This month's Fido and Shaw cable bill have been received but not paid yet. They use three credit cards (TD, CIBC and RBC). The RBC credit card has a feature of 4% cash reward for spending on groceries and gas, but its interest rate is the highest 25.99%. They use RBC credit card for gas, groceries and some miscellaneous spending to maximize the cash reward, and they pay off entirely the balance each month to avoid any interest charge. The current balance on the card is $1,205. Their current unpaid bills also include their gym membership with Twisted Steel $90 and this month's auto insurance. zuslifoly 102 They have one child named Daniel aged 2. They plan to have another child, ideally in two years when Eric's income is higher with the potential promotion to be an associate professor. Before their 2nd child is born, they want to own their own house. The landlord has expressed the interest of selling this yellow house to them at $700,000. They have learned from the landlord that two major costs of possessing this yellow house are the property tax $6,300 annually, and the insurance cost $3,000 annually. They plan on paying 20% down payment to save on the CMHC insurance cost. They do not have substantial savings because University of Lethbridge just experienced a 6-week strike and lock-out during which Eric had to use up all the family's savings to make up for the income loss due to the University lockout. Eric can use his RRSP balance to cover some of the down payment. He has been putting $1,000 a month in a RRSP and currently has $48,000. property at the end of the year. Eric's mother has promised to gift him $100,000 to support the purchase of a new property. They plan on buying the Buying a home is a big step. Eric and Sarah would like to have better control over their financial lives before taking this step. They are satisfied with Eric's good job with decent incomes, yet they are frustrated as they have too much debt. Although they tried their best, they cannot seem to get their credit cards paid off. Eric also has a student loan, and a car loan. It seems that they have no hope of being free of debt payments. 2 They recently sat down and made a list of some of their short to medium term financial goals 1 3 4 They would like to buy a house before having their second child, and Eric's parents coming to Canada They want to stop using credit for things and get their debts (other than mortgage) paid off. They want to become debt free and stay that way. To remain debt free they will have to save for future vehicle purchases Eric does not want their children to have the student loans he has. He would like to be able to pay for 4 years of university tuition and fees for each child. Eric and Sarah are currently busy with work, Daniel, and activities outside work. They don't have the time to figure out what they need to do to achieve their goals so they have decided to seek out a financial planner. To get started their financial planner asked them to provide some information on their financial goals and their current financial situation. Sarah has a student loan with a balance $11,600. She pays $210 per month and the interest rate is 7%. Eric has student loan with a balance of $59,000. He currently pays $600 per month and the interest rate is 6.5%. They have two credit cards besides the RBC one they use for their gas and groceries. Sarah's TD card has a balance of $3,600, she is paying $150 per month and the interest rate is 19.99%. Eric's CIBC card has a balance of $5,900. He is paying $175 per month rate is 1%. and the interest rate is 11.99%. They have a car loan with a balance of $9,400. They pay $540 per month and the interest Eric and Sarah have never really tracked how they spend their money. They estimate that their current monthly expenses medical/dental include the following: groceries and household stuff $670, clothes budget $320, haircuts and personal care $180, expenses not covered by insurance $50, entertainment and eating out $240, health club membership and sports fees $100, hobbies $120, gifts budget $60, charity $50, travel budget $250, auto insurance $185, auto maintenance budget $100, auto fuel and oil changes $350, miscellaneous auto $25, and finally $800 in childcare costs. - Eric contributes 12% of his gross pay to his defined benefit pension plan University Academic Pension Plan (UAPP). The current commuted value of Eric's pension is $60,800. Sarah's employer has a Defined Contribution Pension Plan. $16,500. Sarah contributes 5% of her gross pay and her employer matches his contributions. The current balance in the plan is Eric and Sarah each have a car. Since they both work and have to get Daniel to and from childcare they need to have two vehicles. Eric drives a 2018 Toyota RAV4. He figures the car will last another 10 years and at that time he will buy a used value $10,000 for his car when he replaces it. vehicle for about $35,000 (today's dollars). The car is currently worth about $35,000 but he expects to get a trade-in lans overl Sarah drives a 2014 Dodge Cavaran with a value $13,000. She worries about safety and would like to replace the vehicle when it reaches about 165,000 kilometers which they estimate will be in about 3 years. They figure they will buy a slightly used vehicle and will spend about $18,000 in today's dollars. Based on some research they figure their current vehicle will have a trade-in value of about $2,000 (in today's dollars). Eric and Sarah have a balance of $600 in their chequing account and $200 in cash. Their furniture is worth $7,500, all fully paid for, and Sarah has $8,000 worth of jewelry, which were gifts from Eric's mother on Sarah's wedding day. As a highly educated and self-motivated person, Eric is a true believer of the importance of highquality education to one's life and future career development. He plans to send both of his children to a local private school. The tuition fee for each child is $575 monthly for 12 months for current year. The tuition is expected to increase by 5% each year in the next ten years. The family receives monthly Canada Child Benefit of $390. Eric and Sarah have completed Eric's parents' sponsorship applications, hoping to bring Eric's parents to Canada as permanent residents in 2 years. His parents would be able to babysit their grandson Daniel, which means that the rat childcare cost will be saved. Eric and Sarah do not worry about any additional costs associated with Eric's parents joining in them, because Eric's parents are business entrepreneurs in their home country, and they are self-reliant, having sufficient money to cover their living expenses in Canada. While they are a long way from retirement Eric and Sarah have talked about what life in retirement could look like. They think they would like to travel quite a bit, spend time with grandchildren they hope to have, stay active enjoying outdoor activities on the Sunshine Coast and Vancouver Island in the summer. They expect to be mortgage free by the time they their expenses in retirement will be around $77,700 in today's dollars. retire so the money they spend on their mortgage will go toward their travel and leisure activities. Therefore, they estimate Eric wants to retire at age 65. Eric will be able to retire with a full pension (estimated to start at $73,900 per year in future are 65, so they don't have to take a reduced amount. dollars or $30,100 in today's dollars and increases at 60% of inflation). They don't plan on starting CPP benefits until they