Part A:
The following is a self-financial plan for a Canadian single man of 24 years. I received in 2015 a degree in a Canadian college and started to work in a tech company. I need a financial plan from the current date 2016 until my death. The estimated death age is 82 years old according to Canadian Census .
The development of each step of the timeline and goals requires my knowledge, experience and money. Canada is the external environment to consider, a country with an economy tied to the United States of America, the minerals and oil exploitations and the development of high-tech industries and services .
The timeline is divided into eight parts with a high concentration of goals and activities until my 44 years old to increase cash flow and give support to my family. The plan has the basis that an employee has difficulties to achieve financial freedom , and the plan has the goal to start being and employee and later a business owner. Working as a business owner gives benefits in taxation and wealth management than working as an individual.
Current date (2016-2019):
The first goal in the current date is to find a job in a high-tech company in the first six months after receiving the college degree with an annual salary of 65,000.00 Canadian dollars
. The salary after income taxes (20.5%) is possible to calculate the net revenue per year , which is:
I = 65000 * 0.795 = 51675 CAD.
The job in the company gives me a three weeks' vacation per year without benefits in housing, food, and transportation.
The most important output in the cash flow in the period is the acquisition of the first car. The car has a value of 25000 CAD with a payment plan of 4 years with 0% interest. The estimated monthly payment is:
car_p = 20,000/(4*12) = 417 CAD
I will start renting a small apartment in the uptown area of the city with a monthly payment of 800 CAD . The general services of the apartment have an average value per month of 600 CAD. There is no need to buy a house because the dynamics of the market and the mobility of the job. The work requires me to travel to other offices of the company in Canada and the United States of America.
Second lap (2020-2023)
This period is the best moment to change job. The idea to change job is to work in a new company in the sales sector to develop new skills in sales and management. The salary estimation for the new job is a monthly salary of 70,000 CAD. The salary after income taxes (20.5%) is possible to calculate the net revenue per year, which is:
I = 70000 * 0.795 = 55650 CAD.
With the previous work experience, a new job it is necessary to get new skills in an academic environment. The enrollment in a Master of Business Administration is the best way to acquire new knowledge in business, management to prepare me to develop new business. The MBA will have a time length of two years and a total cost of 22,000 CAD .
It is necessary for me to have a house property. Due to the new job, the master degree and the need to have stability and preparation to have a family it is necessary to acquire a small apartment. The proposed asset is a 500 ft2 in the uptown area of the city, due to the availability of a car and public transport.
The estimated price of the 500 ft2 in the uptown is 195,000 CAD with a down payment of 20% and the rest to pay in five years. That is:
Down payment: 20% * 195,000 CAD = 39,000 CAD
Mortgage: 156,000 CAD with an interest rate of 2.69% in a five year period. This will result in a monthly payment of 2781.68 CAD for sixty months. The mortgage does not require an insurance payment due to the 20% down payment.
Third lap (2024-2027)
The third lap of the life plan is to finish my MBA. The MBA will give me new skills in business and management, business contacts and the environment to create new businesses and a a new company.
With a paid apartment, a car, a finished MBA, a job with an average salary, it is a moment to make a two months trip to prepare me for new challenges. I will have a girlfriend in that moment with the potential to be my wife and with the intention to have kids and be a family father. Since I started to work in my first job I always took one week of "real" vacations per year because I did extra hours and days in the company to get extra payments and bonuses. The plan is to get a two months license in the job to make a long trip overseas. The proposed destination is the southern island of New Zealand away from the city routine and work. The estimated costs for the trip are:
■ Flight ticket from Toronto (YYZ) to Christchurch, New Zealand (CHC): 2,700 CAD
■ Basic daily cost (Food, Transport and Stay): 200 CAD
■ Emergency and overall extra costs: 5,000 CAD
Total cost of trip: 19700 CAD
After the trip, the plan is to propose marriage to my girlfriend. The marriage could be a sign document event, but depending on my girlfriend, the marriage could cost an important amount of money, for that reason it is necessary to make an estimation of the marriage process and the honeymoon.
The overall cost for the wedding process, that is, legal wedding, religious wedding, party, and honeymoon will have an estimated cost of 25,000 CAD .
After the wedding and first months of couple living, the probability of my wife to got pregnant are high, a situation which is necessary to estimate. The estimated cost for pregnancy is 10,000 CAD .
The existing car bought in 2016 requires a change, due to the depreciation of the car and the requirement of new space for the family: the wife and the new child. The plan is to buy the new car with similar payment conditions of the first car and then sell the existing car to get cash. The car must be a Sports Utilitarian Van.
The estimated cost of the SUV is 35,000 CAD with a 60-months payment plan at 0% interests.
car_p2 = 35,000/(4*12) = 729 CAD
The sale of the first car is estimated in 3000 CAD.
Fourth lap (2027-2035)
The fourth lap is the most important lap of the personal economic plan when the will change my employee condition to be a business owner and entrepreneur. The first goal is to create a corporation with a family partner (wife, relative) or a close friend with similar economic goals and interests.
The estimated costs for the corporation creation are 2,000 CAD in advisory and legal payments and a wire transfer of 100,000 CAD to the bank account of the new company .
The goal of the new company is to offer engineering services and general investments. It is possible not to have very clear what will be the goal of the company. The first goal for the creation of the company (not written in the company mission statement) is tax payments. Under the Canadian law, the individuals have to pay a minimum rate of 15% to 33% depending on the gross income. The tax rate for small businesses, under the Canadian law has rates between 9% until 14.5% (lower provincial rate) and 25% (higher provincial rate). The rate for small business applies to the Earnings before Interest, Depreciation, and Amortization. Under this plan and the advisory of an accountant, it is possible to pay fewer taxes and increase investments.
Quit job: After the corporation creation, it is necessary to dedicate more time to the new entrepreneurship. I must have contact with potential providers and clients, the market needs and the economy development.
Open a shop or office: This step is an optional step, due to the ability of the home entrepreneurship, but for estimation purposes, it is considered the opening of a 300ft2 office with one employee. The office will have a physical and virtual presence on the internet. The company will acquire furniture, inventory, and machinery.
The estimated cash flows for the new office are:
Office monthly rent payment (Optional): 2000 CAD
Employee monthly cost: 3500 CAD
Furniture and Machinery overall cost: 35,000 CAD
Monthly internet services, hosting, and online advertising: 200 CAD
Inventory: 50,000 CAD
All the previous values will be paid using the bank account of the corporation.
My son will ask me to have a brother or sister; my wife will agree with that argument. The plan is to have a second child but, that pregnancy will be under surveillance due to the wife age. The costs of the pregnancy will be higher than the first pregnancy, more control and a possibility to use fertility procedures will increase the cost. The estimated cost for pregnancy is 20,000 CAD .
2000ft2 house: With the pregnancy of the second son it is necessary to have a bigger house. The increased revenues for the new shop allow my family to have more money to new investments and compromises. The new home will have a basement, kitchen, three rooms, two bathrooms, one entertainment room and a backyard.
The estimated value of the 2000 ft2 house is 400,000 CAD .
The down payment for the house: 20% * 400,000 CAD = 80,000 CAD
Mortgage: 320,000 CAD with an interest rate of 2.69% in a five year period. This will result in a monthly payment of 5706.00 CAD for sixty months. The mortgage does not require an insurance payment due to the 20% down payment .
Rent the apartment: Once my family moves to the new house, the apartment will be available for rent, an innovative measure to generate positive cash flow and help the family to pay the mortgage on the new home. The estimated rent value for the apartment (income) is 1000 CAD .
Fifth lap (2036-2043)
The corporation has gross sales of 500,000 CAD with revenue after taxes of 150,000. It is necessary to expand the company with two new offices in two near cities.
Open two new offices: It is a necessary step for the growth of the company. For estimation purposes, it is considered the opening of two 300ft2 offices with two employees each. The company will acquire furniture, inventory, and machinery. At this point, it is necessary to appoint a General Manager that manages the whole company and give weekly reports to the CEO of the company to give me more time to create new businesses and opportunities. The new enhanced company will increase the sales 100% in the following three years.
The estimated cash flows for the new offices are:
General Manager monthly: 10,000 CAD
Two Offices monthly rent payment: 5,000 CAD
Employees monthly cost: 7,000 CAD
Furniture and Machinery overall cost: 80,000 CAD
Inventory: 200,000 CAD
All the previous values will be paid using the bank account of the corporation.
Two months trip to Sri Lanka: With a General Manager ruling the enhanced company, there is a change for me and my family to travel for two months to a special destination. The proposed destination is Sri Lanka. The estimated costs for the trip are:
■ Flight ticket from Toronto (YYZ) to Colombo, Sri Lanka (CMB): 2,000 CAD each
■ Basic daily cost (Food, Transport and Stay): 400 CAD each
■ Emergency and overall extra costs: 15,000 CAD
Total cost of trip: 47000 CAD
The existing car bought in 2024 requires a change, due to the depreciation of the car. The plan is to buy the new car with similar payment conditions of the first and second car and then sell the existing car to get cash. The car must be a Sports Utilitarian Van.
The estimated cost of the SUV is 45,000 CAD with a 60-months payment plan at 0% interests.
car_p2 = 45,000/(4*12) = 937,50 CAD
The sale of the first car is estimated in 6000 CAD.
Sixth lap (2044-2063)
Both sons enter university: It is necessary to pay the tuition and related costs for the studies of both sons. The estimated costs for each son are 10,000 CAD per student per year. The two sons have different ages, for that reason, one son will get the degree and the second son will enter the University. The estimation is four years for the first son and four years for the second son .
Seventh lap (2064-2073)
Corporation equity distribution: It is necessary to change the equity distribution of the company. The goal is to give equity share to the General Manager and my two sons reducing my participation to 15% of the company facilitating the process after my death.
The two sons left the house, and me and my couple will start living alone, again. This is the best moment to downsize and simplify. The best move is to offer in sale the house and return to the 500ft2 apartment. The asking price for the house is 350,000 CAD.
Last lap (2074)
Death: All the properties belong to the company, and the company belongs to the family and the General Manager.
Part B
The taxation is an important issue in financial planning. The goal of this plan is to reduce the tax payments using legal instruments, and the best instrument is the corporation. As an individual, the government applies a tax rate from 15% to 33% in the gross income of the person but as a corporation, the government applies different taxes depending on the province and the company size with a minimum rate of 9% and a maximum rate of 25%.
Balance Sheet (2016)
Assets
Cash and Banks 32500 CAD
Car 20000 CAD
Total Assets 52500 CAD
Liability
Income tax to pay 13375 CAD
Long term debt 15000 CAD
Equity 24125 CAD
Liabilities + Equity 52500 CAD
Income statement (2016)
Salary 65000 CAD
Car payment -5000 CAD
Personal expenses -16800 CAD
Net revenue +43200 CAD
Reference List
Incorporation in Canada. (2015). Retrieved from Apinter Intertrust Corporation: https://www.apintertrust.com/incorporate_in_canada/for_nonresidents.htm
Canada Revenue Agency. (2016). Corporation tax rates. Retrieved from http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/rts-eng.html
Canadian Black Book. (2016). Canadian Black Book. Retrieved from http://www.canadianblackbook.com/
CCQ. (2014). Economy of Canada. Retrieved from CCQ: http://www.ccq.ca/
Huffington Post. (2014). Wedding Costs In Canada Are More Than Anyone Expects. Retrieved from Huffpost Living: http://www.huffingtonpost.ca/2014/04/23/wedding-costs-canada_n_5198681.html
Kayak. (2016). Kayak. Retrieved from http://www.kayak.com
Kijiji. (2016). Bachelor Studio in Toronto. Retrieved from Kijiji: http://www.kijiji.ca/b-bachelor-studio-apartments-condos/ontario/c211l9004
Leung, J. (2014). Can An Employee Have Financial Freedom? Retrieved from http://www.streetdirectory.com/travel_guide/162462/finance/can_an_employee_have_financial_freedom.html
Rate Hub. (2016). Best Mortgage Rates in Canada. Retrieved from Rate Hub: http://www.ratehub.ca/best-mortgage-rates
Save Spend Splurge. (2014). How much it might cost to give birth in Toronto Ontario Canada (2014). Retrieved from Save Spend Splurge: http://www.savespendsplurge.com/how-much-it-might-cost-to-give-birth-in-toronto-ontario-canada-2014/
Talent Egg. (2014). Average starting salaries for engineers in Canada. Retrieved from Talent Egg: http://talentegg.ca/incubator/2014/09/15/average-starting-salaries-engineers-2014-edition/
The World Bank. (2015). Life expectancy at birth, total (years). Retrieved from The World Bank: http://data.worldbank.org/indicator/SP.DYN.LE00.IN
Universities Canada. (2016). Tuition fees by University. Retrieved from Universities Canada: http://www.univcan.ca/universities/facts-and-stats/tuition-fees-by-university/
