Smith Family Financial Planning Harvard Case Solution & Analysis

General Discussion:

            Currently, the financial situation of the family is good as they have net assets totaling $179,126. The family has non-current assets of $325,000 that include two cars one home and home furnishing. Although their current assets contain $850 in cash, 1300 in current account and $2,200 is there in saving account. The liabilities include home loan, car loan and a current liability of 5,500 for credit card outstanding.

            The family has some goals that they need to achieve and the goals are given as follows;

  • The first goal of the family is to have RESP plan for their children and the family has agreed to pay monthly payments to make a total of $100,000 to support the secondary education of their three children.
  • The second goal of the family is to have a holiday that requires an amount of around $50,000.
  • The third goal of the family is to have a new car for Joel as her current car is very old and it requires too much expenditure on its day to day running costs.
  • The final goal of the family is to have a pension plan for both husband and wife for their old benefit.

These all goals are not achievable because their current income is not enough to finance all these financial goals. The goals can only be achieved if the family repays the home loan and car loan that represents 29% of their net annual income. The only possibility that can make it possible to have all goals can be achieved. However, these loans with certain saving measures can make it possible to achieve RESP and saving plan goals without compromising their home and car loan.

Planning and personal financial statements:

            In this case, the total net monthly income of both Joel and Amber smith is $4,800 and their expense amounting to $5,336 (Appendix 1). The family is facing a deficit problem that is genuine in their case because of heavy expenses. The deficit amount is $536 that represents 11% of their income. The first target for the family is to reduce their expenses otherwise the family cannot meet their long term plans for the education of their children and retirement plan.

            Although their current expenses are above their income, therefore it looks that a company cannot even meet its current needs, and then it is not possible for them to satisfy their long term needs with their current level of incomes and expenses.

            Currently, the family is facing the deficit problem but their balance sheet looks positive due to their past saving steps. Their total assets are amounting to $329,350 and their net total liabilities amounting to $150,224. The balance sheet makes a total net assets figure of $179,126.

            Although the family has net assets in positive figure, but its current ratio is not acceptable. The current ratio of the family is only 0.75, the company is not even able to pay off its current liabilities. The situation puts an extra pressure of interest expense on the family that makes the deficit worse.

            Nonetheless,the family cannot achieve its lifestyle goals and saving goals because of heavy loan repayments and deficits in their current incomes and expense stops family to achieve their goals.

            They are receiving a payment of $100 per month from universal child care and the amount can flow to the family for two years more making its total income at a surplus of $664 ($1200-$536).Smith Family Financial Planning Case Solution

Time value of money and its impacts on family goals:

            A registered education saving plan (RESP) is a contractual arrangement between the subscriber and the promoter in which the subscriber pays monthly, quarterly, semiannually or annual payments to promote. The promoter agrees to pay educational assistance payment to beneficiaries specified by the subscriber(RESP).

            This plan works for the benefit of the education of children, through this pan a subscriber contact promoter and make regular payments to promoter with an annual fixed return.The grants can be Canada Education Saving Grant (CESG) and many more that are working in Canada for such contractual arrangements.

            The benefits of going through such contractual arrangement are; this is a tax free zone as the payment of plan, returns and end payment is free of tax in the hands of the beneficiary. The payment mode can be a single payment after a time interval specified and regular payments to support the education of the beneficiary(RESP benefits)..........................

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