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Customer Profile: Mr. & Mrs. Austin

Mary and Steve Austin have been married for 5 years and have a 4-year-old daughter named Lindsay. The Austin’s are starting to think more about their future with the aim of implementing their short-term and long-term lifestyle goals and financial plans. Mary and Steve are both aged 35.

For their immediate future they have decided they want to purchase a new car, and their first home. They would like to replace Steve’s car with a new BMW; total retail price including taxes is $52,522. The Austin’s are unsure whether to purchase the vehicle using their savings or borrow the funds from the bank or take advantage of BMW’s dealership financing available. They are also looking to purchase a house with an approximate purchase price of $600,000. They are very excited as both Mary and Steve have never owned a home before.

Steve Austin works as a manager for a robotics manufacturer and earns $100,000 gross annual income ($75,384 after tax). Mary works for a small local manufacturing business as a chief accountant earning $125,000 gross annual income ($89,322 after tax).

Mary and Steve want to retire at age 60 and are willing to take on some additional risk if this assists in achieving their lifestyle goals faster. Two years ago, Mary received an inheritance from her late father in the amount of $200 000. With this money they each opened a TSFA (Tax Free Savings Account) and invested $15 000 each. They also opened an RSP for the first time and contributed $10,000 each. The residual balance of the inheritance, $150,000 was deposited into a savings account at the bank because they were unsure how to invest their money. They also wish to set up a RESP for Lindsay, so she has her education costs covered when she goes to school.

Steve and Mary have disability insurance and health care insurance through their employers but neither has a group life insurance plan. They know they both need to purchase life insurance, but they do not know what kind or how much to buy. They also need to understand the expected cost of the insurance policies. When considering life insurance, the Austin’s also thought about setting up an emergency fund and are unsure how much they should put aside.

Banking Chequing Account Balances $2500 As of March, 31
Bank Savings Account Balances $150,000 As of March, 31
Mary’s TFSA $15,000 As of March, 31
Steve’s TFSA $15,000 As of March, 31
Mary’s TFSA $10,000 As of March, 31
Steve’s TFSA $10,000 As of March, 31
Steve’s Car (3 years old) Value $14,500 Based on similar cars listed online
Mary’s Car (1 year old) Value $33,500 Based on similar cars listed online
Steve’s Car Loan $14,500 Loan balance as of March 31
Mary’s Car Loan $33,500 Loan balance as of March 31
Telephone & Internet $250 / month
Rent $1500 / month
Car insurance for both cars $2,800 / year
Mary’s Car Payment $625 / month
Steve’s Car Payment $500 / month

Assignment: Create a Financial Report for Mr. & Mrs. Austin

For this assignment, imagine you are a Financial Planner. You met with the Austin’s last week, and you are now tasked with preparing a financial plan / report for them. You will make specific recommendations on how they can achieve the goals they shared with you. You are confident if you provide a comprehensive plan that aligns to their goals, you will earn their business for many years to come. You plan to review the report with them at your next meeting.

In this Financial Plan you will:

1. Provide a summary of the Austin’s short-term and long-term goals.

2. Develop a Net Worth Statement and Cash Flow Statement for the Austin’s current financial situation.

3. Evaluate the financing options available to the Austin’s for the new BMW purchase. Should they lease, take a loan, or use their savings to buy the car with no financing? Compare & contrast bank rates versus BMW dealership financing. A table showing the options would be helpful here. Cite your references.

4. Find an ideal home in the Oshawa area for the Austin’s using that aligns with their budget, lifestyle and aspirations. (Given the pace homes are selling at, include screen shots of the home and relevant information from in your appendix as content links are often unavailable even days later) Recommend and justify the size of down payment the Austin’s should make. Determine if they will require a conventional or high ratio mortgage and why. Select a bank and then find a term and corresponding rate suitable for the Austin’s. Calculate the couples GDSR and TDSR. Show your calculations. Cite your references.

5. Recommend life insurance options for the Austin’s. What type of policy do you recommend (Term, Universal or Whole Life) and why? How much insurance do they need and what is your rationale for your recommendation? What would be the cost of this insurance? Cite your research and show your work; simply cutting and pasting a screenshot is not sufficient. (Students should perform external research to determine the cost of life insurance policies. If you use internet research, provide a screenshot of the web page you collected the quote / information from in an Appendix)

6. Investments – How much do the Austin’s have to invest, and what sort of investments should they invest in? There are three main types of investors based on risk tolerance levels; Low – people looking for safety and investment income, Medium – people looking for some safety but are willing to have more risk to achieve some investment growth, and High – people looking for investment growth and are wiling to experience large volatility in their returns. Decide what type of investors the Austin’s are and then recommend an asset mix (Hint: if you aren’t sure what an asset mix is, be sure to look this up before you start).

7. Make realistic recommendations to improve the Austin’s financial situation /cash flow resources given their financial goals. How should they go about investing to meet their goals? What are some things they might consider to help them with long term financial success?

8. Finally, calculate a revised cash flow statement adding in the mortgage, the life insurance policy or policies (if recommended), the financing option recommended for the BMW, as well as any additional recommended initiatives for the Austin’s.


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