Illustrations

This section presents real scenarios or cases. The purpose behind giving cases is to illustrate different situations and provide information on how future savings can be achieved. Please do not use the given solution without either consulting your advisor or us. The right solution can only be designed after reviewing all financial parameters.

Case Number 1

A family of 6 consists of Husband (40 years), Wife (32 years), Father (78 years), Mother (70 years) and 2 children aged 10 years and 5 years. Family income is $60, 000. House mortgage is about $100,000. No real saving and insurance except mortgage insurance from bank.

Suggested Solution (Financial Plan)

  • Replaced mortgage insurance from the bank by Term insurance. As explained under Mortgage and Loan in essence bank insurance is as good as nothing. Term 20 insurance of $500,000 was for husband and Term 20 insurance of $250,000 for wife. The total premium was less than $70 per month compared to just mortgage insurance was around $30. We looked for permanent insurance as well but considering the premiums, pay backs and financial situation it was determined that it was not the right thing to do. Amount of policies was determined after doing the complete Need Analysis of the family.
  • Completed the Personal Financial Review of the family by looking at sources of income, expenses, assets and liabilities. The analysis revealed that there was an income of about $200 per month that was not handled properly so it was directed towards RRSP as there was lot of room was available. Commitment was also obtained that saving on taxes will be used to either put the amount back in RRSP or towards TFSA. This strategy started monthly future income creation which was non-existent.
  • Advised husband to get permission from the Grand parents in using the OAS payment to contribute towards children RESP as this money was in essence was free considering the family situation.
  • Past 3 year taxes are being reviewed to free up more money for future wealth creation.

The plan will be monitored on a six month basis. Portfolio for this family will be more on growth side because of earning years are more, and potential to create income from side business is high.

Case Number 2

A family of 4 consists of a husband (age 53), a wife (age 48)and children aged 25 and 22. The family income is about $60,000. The house mortgage is about $60,000. There areo real savings and debts are high. They have a term insurance policy.

Suggested Solution (Financial Plan)

  • Performed detailed review of the income, expenses, assets and liabilities. Income analysis revealed that employers were giving annual bonuses that were not being used in a constructive manner. Suggested to put them in RRSP plan since the plan has significant room. Also, suggested to invest tax savings back into RRSP plan.
  • Analyzed the mortgage payment and equity in the house and suggested to refinance the house by keeping the same mortgage payments and time frame to pay off the debts and contribute remaining amount towards RRSP. Again, tax savings should be invested in RRSP. Payments freed up by paying debts should be invested in TFSA after maximizing RRSP contributions.
  • Policy is being looked at for possible upgrade or replacement as it does not address 2 components, purpose and time.
  • Tax analysis is being done to find areas where savings can be achieved since husband has side business. No one noticed this fact.

The plan will be monitored 2 to 3 times in a year. The portfolio for this family will be more on the conservative side than growth as there is not much room for losing capital since earning years may decrease and there is almost no room to recover.

Case Number 3

A family of 3 consists of a single mother (age 51) and 2 children aged 25 and 23. Their house mortgage is $350,000. High debts and small RRSP plan though employment benefits are very good including employer sponsored pension plan. No significant investments and they have mortgage insurance from the bank that provided the mortgage.

Suggested Solution (Financial Plan)

  • Suggested cancelling the mortgage insurance from the bank as there was a Life Insurance policy. This resulted in savings of over $100 a month.
  • Carried detailed review of the financial parameters and determined that in the present situation the best option is to pay off the debts. However, the savings that were realized after cancelling the mortgage insurance was put into the TFSA account.
  • Taxes are being analyzed as we believe there will be significant savings. These savings will be used to top up the RRSP contribution and TFSA.
  • Suggested investing the savings from the RRSP contributions to start the TFSA for the children.

The plan will be monitored 3 to 4 times a year as debts need to be closely monitored. Since there are very good benefits from the employer the portfolio for the TFSA has been constructed with growth as the primary focus.

Case Number 4

A family of 4 consists of a husband (age 45), a wife (age 35) and 2 children aged 12 years and 9 years. The family income is $150,000. Normal debts and small investments and RRSP plan. Good benefits from the employer therefore, focus on personal savings is not a priority. Mortgage insurance from bank and also have regular policy.

Suggested Solution (Financial Plan)

  • Analyzed the net worth of the family which came out as negative since expenditure on Food was high and also taxes were high. When analyzing the net worth we did not take into consideration the value of home however, mortgage payments were considered as expenses. The reason we did not consider home as an asset because we think the assets should be those that can be readily converted into cash.
  • We analyzed the taxes first and found areas of improvements. Also, the savings resulted from RRSP contribution was being used on personal items. Suggested to use it to either start RESP for children or TFSA. We have not yet determined the savings from taxes but agreement has been reached to start the RESP for children.
  • Need analysis is being done to determine the insurance needs as mortgage insurance from bank is waste of money. There will be 2 policies as both husband and wife are working.

The plan is still not finalized, therefore we have not yet determined how often it should be monitored. However there will be a review after 6 months. Since the employer provided benefits are very good the portfolio will be growth oriented.