You are an independent financial planner working in Ontario. It is June 2021, you just finished another meeting with Jason and Amanda and, after reviewing all your notes, compiled the following summary:

 

Background Information

 

Client Name:  Jason and Amanda

Marital Status:  Married

Age: Jason 35, Amanda 38

Children:  Twins due November 2021

Address:  Toronto, Ontario

Next of Kin:

Jason’s parents - Bill and Jenny, aged 66 and 64, respectively. Live in Halifax, Nova Scotia.

Amanda’s parents – Murray and Karen, aged 69 and 68, respectively. Live in Milton, Ontario.

 

 

Employment Information

 

Jason works as a data scientist and is paid an annual salary of $95,000, gross.  His gross salary has been the same for the last two years and is expected to be the same till he either gets a job promotion or moves to a new employer.  He has been working at the current company for three years.  Based on his most recent tax return he has the following deductions:  CPP $2,898; EI $856; Federal tax $13,097, Provincial Tax $6,630, employee contribution to the Defined Contribution pension plan is $4,750.  His employer provides extended health care benefits, matches the employee contributions to the Defined Contribution pension plan, and provides life insurance for 2x his salary.

 

Amanda is a full-time teacher at a private high school.  She has been working at the same private high school for the last six years. Her income was $80,000 gross last year and she expects her income to remain the same for the next five years.  Based on her most recent tax return she has the following deductions:  CPP $2,898; EI $856; Federal tax $10,998, Provincial Tax $5,512.  Her employer provides extended health care benefits but no pension plan. 

 

 

Personal Expenses

 

Jason and Amanda rent a 2-bedroom condo in downtown Toronto.  Their monthly rent is $2,599 which includes one parking space.  Other housing costs include hydro of $145 per month and their tenant insurance is an annual amount of $400.

 

Usually, Jason and Amanda get to work via transit, another ride-sharing service, or walk.  Their average monthly transportation costs total $225 for both.  They do have a car, current value $14,000, which they use on weekends and to go visit Amanda’s parents in Milton.  They expect that they will use the car more once the twins are here.  They purchased the car using cash and were able to negotiate a cash discount on the cost of the car.  Car expenses (includes gas, oil, other maintenance, licenses, etc.) average $400 per month.  The annual car insurance premium is $1,500.  They do not anticipate needing to replace the car or purchase a second vehicle for the next five years.

 

Jason and Amanda really enjoy living downtown.  There is always something to do such as meet up with friends, watch a sporting event, or go to shows.  After reviewing the monthly statements for their bank account and credit card statements, their monthly entertainment expense is $600, and they spend $450 a month eating out.  They also enjoy traveling and try to get away a couple of times a year.  On average they spend $8,000 per year on vacations.

 

The total amount of cash withdrawals from the ATM for the month of May is $900. This number surprised Jason and Amanda as they never totaled the monthly amount of cash they were withdrawing from the ATM.  They could not remember how they spent that amount of cash except for buying coffees, lunches, some lotto tickets here and there or when out with friends.

 

Jason and Amanda are giving people.  Over the last year, they spent $1,200 in gifts to others and $900 in donations.

 

Other monthly expenses include groceries of $600, clothes and miscellaneous of $350, gym membership of $250, and communication bundle of $300.

 

 

Bank Accounts and Investments

 

Jason and Amanda have a couple of bank accounts.  They use their joint bank account for payroll deposits and to pay expenses.  The balance in the joint bank account at the end of May was $11,800.  They also have joint high-interest savings account at the same bank.  The balance at the end of May was $10,450.  They use this account as part of their emergency savings funds.  A couple of times a year they move some of the excess funds from the joint bank account to the joint high-interest savings account.

 

Both Jason and Amanda contribute $500 monthly to each of their TFSAs.  Based on the most recent government statement Jason has $39,000 of contribution room available and Amanda has $33,000 contribution room available.  As of the end of May Jason’s account market value was $41,600 and Amanda’s account market value was 46,250.  They invest the funds in stocks that can be sold quickly if needed.  They intend to use 50% from each of their TFSAs towards a down payment for a future home purchase.  The other 50% of the TFSAs is allocated to be used for emergency savings funds.

 

Jason and Amanda have been saving for retirement up until they decided to start saving for a down payment for a home.  At the end of May, their RRSP balances were Jason $41,000 and Amanda $48,500.  Ever since Jason and Amanda have been saving for a house down payment, they have stopped making contributions to their RRSPs.  Jason also has a Defined Contribution pension plan at his work.   The pension plan market value at the end of May was $29,000.  The investment holdings are mutual funds. 

 

Other investment accounts include a joint non-registered account valued at $112,000.  In the past, they have deposited any additional money they received from work such as bonuses however most of the funds came cash received as wedding gifts.  Since they started planning to buy a home, they have been adding $500 each month to this account to go towards the home down payment.  They consider the use of the funds to be for emergency use except for the amount needed for a home down payment.  They invest half of the balance in this account into bonds and GICs and the other half into stocks to have some diversification.   Amanda also has a non-registered account that she inherited from her late Grandpa.  The market value of the stocks in this account was $105,000 at the end of May.  Currently, she does not have specific plans for these funds but is holding them for future use.

 

Jason and Amanda have limited investment knowledge.  When they have investment decisions to make, they typically will ask their friends for advice.  Amanda invested her inheritance into the same stock holdings that her Grandpa had when he passed.  Usually, they are willing to take on some risk to increase the return.  On average, Jason and Amanda earn a return of 4.5% on their investments.

 

Debts

 

Jason owes $8,000 on his credit card.  The interest rate on credit card debt is 18.0%.

 

Amanda owes $9,500 on her credit card.  Recently, most of the purchases are items for babies.  The interest rate on credit card debt is 19.25%

 

To make things easier, Jason and Amanda have set a reoccurring payment from their joint bank account to pay monthly a set amount of $400 to each of their credit cards which is higher than the minimum payment amount on each of their credit cards.

 

Years ago, Jason and Amanda consolidated their debts which included some student loan balances and credit card balances at that time into one debt payment using a line of credit.  The balance on the line of credit on May 31, 2021, was $23,000.  The current interest rate for the line of credit is 6.5%.  They make monthly payments to the line of credit of $350.

 

Amanda recently received the following new credit card offers:

 

Details	Credit Card Offer #1	Credit Card Offer #2
Cash rebate on all purchases (paid at year-end)	0.3%	0.5%
Grace period	26 days	23 days
Annual fee	$25	$65

 

 

 

Future Changes and Plans

 

Jason and Amanda are looking forward to becoming parents to twin girls in November.  Amanda will be taking an 18-month maternity leave.  They are still discussing whether Amanda would return to her work on a full-time basis or part-time basis after maternity leave.  If Amanda were to return to work on a part-time basis she plans to do it for a couple of years until the twins are in full-time school.  Amanda’s gross salary on a part-time basis would be $40,000.  The deductions would be:  CPP $1,916; EI $632; Federal tax $3,445, Provincial Tax $1,796.

 

They anticipate that the space they are renting will soon be too small as the girls get bigger. They have been looking at houses in the Milton area to be closer to Amanda’s parents.  This will be the first time they are buying a home.  They estimate the house will cost $825,000 and the property taxes will be $4,600 a year.  They expect to get a 5-year fixed closed mortgage: rate of 1.96%, 25-year amortization, and will make monthly payments. Other costs related to the property will include utilities such as gas, hydro, the water of $360 a month; property insurance costs $600 a year, and lastly property maintenance is $75 a month.  *Ignore taxes and closing costs* 

 

Jason and Amanda have been saving for the 20% down payment and will use the funds from 50% of the value from each of their TFSAs, Jason’s parents will gift them $40,000 towards the down payment, they will withdraw the maximum they each can from each of their RRSPs before owing any taxes, and the remaining amount needed will come from their joint non-registered account. 

 

Jason has been building up his network over the past couple of years.  He is planning to leave his place of employment and start his own consulting business providing data modeling and analysis services.  He expects to continue to take the same salary out of his own corporation.  Since he will now need to save on his own for retirement, Jason plans to make $10,000 in annual RRSP contributions.  Assume these contributions will provide him an annual tax refund of $3,200. At the end of 2020, Jason has an unused RRSP contribution room of $81,000.

 

In one of the previous meetings, you discussed the need to look at their life insurance coverage with the new babies on the way. Based on your recommendation, they met with an insurance broker to get a quote for life insurance.  The quote for adequate life insurance coverage for both Jason and Amanda is $165 per month.

 

Jason and Amanda have provided the following additional monthly estimates for the costs of raising the twins: groceries $200, clothes $150, other baby supplies $100.  They would like to start early saving for the twins’ post-secondary education costs.  They aim to save $1,500 annually for each of the twins.  If Amanda goes back to work on a part-time basis, assume the monthly daycare costs would be $1,800.  As the twins get older, the daycare costs will decrease.

 

Changes to other monthly expenses include a decrease in entertainment to $200 per month, eating out will decrease to $300 per month and they will limit their cash withdrawals to $300 per month. They estimate spending $3,000 per year for the family trips to travel to visit Jason’s parents in Halifax.

 

They also expect to receive $4,800 annually in government child benefits after the twins are born.

REQUIRED

Create a Net Worth Statement for Jason and Amanda as of May 31, 2021.  Discuss the net worth figure. (10 marks)

Answer rating: 100% (QA)

Based on the provided information what is Jason and Amandas monthly cash flow after accounting for a... View the full answer