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FINANCIAL PLANNING IN YOUR THIRTIES?

Susan Brown, 35 years old, is a lawyer in the office of the Attorney General Alberta. Her husband, Charlie Brown, 32 years old, is a car salesperson. They adopted twins, Helen and Simon, at age one, three years ago. They do not plan to have more children.

Susan earns $85,000 per annum (p..a.) with $51,000 of that being take-home pay. Her deductions provide full family health coverage (medical, drugs, dentist optical) with $100 deductible per family member each year. She has disability insurance for 70% of her salary and three times her salary in life insurance. Her marginal tax rate is 40%. She has a reasonably secure job, but she does not expect any raises, even for inflation, for at least a while. Last year, civil service salaries were cut or frozen in Alberta. She does not expect any promotions, either. She is good at her job, and well regarded by her superiors. She already works some long hours, staying late some nights and taking work home on weekends. To move up in the organization, she would have to work even more hours, and she refuses to sacrifice her family.

Charlies commission income is quite variable, ranging from $25,000 to $60,000 in recent years. Last year he grossed $60,000, with a take-home pay of $42,000. He has no benefits. Unlike many commission salespersons, he has no significant expenses, not covered by the dealership. He expects he will make $55,000 to $60,000 next year. His job is fairly secure as long as the dealership doesnt fail. The owners of the dealership are fairly conservative and he thinks they are in good financial shape, even with the recession. Charlie usually works one day on the weekends, and one or two evenings a week, but also takes one weekday off. His marginal tax rate varies, but was 30% last year.

Susan and Charlie Brown Balance Sheet December 31, Last Year

ASSETS		LIABILITIES
Chequing Account	$1,000	Visa Gold @ 21.5%	$4,000
Car savings account	8,000	Mastercard @ 18.5% (Maxed out)	7,000
Securities	6,000	Car loan	15,000
Two cars, original cost	60,000	Mortgage on house	260,000
House, current market	400,000	EQUITY	189,000
TOTAL ASSETS	$475,000	TOTAL LIABILITIES & EQUITY	$475,000

They have a housekeeper who does the cleaning, a bit of shopping and cooking, and looks after the children. Helen and Simon will start half-day kindergarten next year. The housekeeper lives in a self-contained apartment with a separate entrance at the side of the house. Her salary and benefits cost $20,000 p.a. On the housekeepers tax form (T4 Slip) they report a taxable benefit of $500 per month for the apartment she occupies. They expect to retain a housekeeper until the children are 12, and then switch to a cleaning service for $150/week. They cant do without her now, because of their inflexible working hours.

They have a lot of trouble saving money. They bought the securities before the twins arrived. Their credit card debt has increased in each of the last three years. They dont keep detailed account of their expenses, but they have sorted them out a bit by using different credit cards and the chequing account for different things.

The car loan has two years left, at 0.75% per month. The balance shown is the current amount owing. They spent about $8,000 last year on gasoline, maintenance, insurance and licenses for the cars, all charged on one credit card. Susan has a two-year-old van that will last for perhaps five more years. Charlie drives a relatively old Cadillac loaded with all the extras. He got it for only $30,000 originally because he works for a GM dealer. He expects to replace it with another one within two years. Their insurance covers $1 million in liability and has a $50 deductible for collision. (Year of Month?)

The house is in good repair, and is located in a nice neighbourhood in Edmonton, two kilometres from the government building where Susan works and four kilometres from Charlies job. They just renewed the mortgage for five years at 6.45%, with a 20-year amortization. They spent $4,000 on taxes and utilities last year, and $2,000 on maintenance and insurance.

Other than the items already noted, they used cheques, and cash withdrawals from the chequing account to pay another $15,000 last year. Food was the biggest item, but they arent sure what else was included.

They used credit cards on other expenditures for a total of $22,000 last year. This included clothing, household purchases, furniture, entertainment, life insurance and vacations. They take two or three holidays per year. Last year they spent one week in Hawaii (without the children), and one week at Whistler ski resort, and a week camping.

Charlie has a $100,000 term life insurance policy. The securities are a portfolio of oil exploration companies (listed on the TSX Venture Exchange). They pay no dividends, but they increased in value by 20% last year.

They want to retire around the time they turn 60. If Susan stays with the government, she will have a pension in todays dollars of $45,000 before-tax, including both her employer and Canada Pension Plan. Charlie will qualify for the maximum Canada Pension Plan.

They would like to maintain a similar lifestyle in retirement. They are concerned about the possibility that their pension plans will be reduced by government cut-backs or tax claw-backs. They have read that there is some risk that the government wont be able to pay full Canada Pension Plan in the future, because it hasnt been sufficiently funded, and the population of retirees is growing rapidly.

They also want to buy a vacation property in a few years, when their current debts are more manageable. They are thinking of something in the foothills, in the $250,000 range. They might retire to it and sell the house in Edmonton, but its too far in the future to be more than an idea.

Required:

You are the financial advisor to Susan and Charlie Brown.

In your analysis and review, your report should contain the following:

1. Prepare a detailed assessment of the familys current financial situation (including a current Net Worth Statement & Cash Flow Statement).
2. Create a revised Net Worth Statement and a Cash Budget to reflect implementing your new recommendations for the Browns.

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