Case Study 1: Introduction to Edward and Bella

Yes, Bella and Edward Cullen. Yes, I read and watched Twilight. I have to admit that I am somewhat embarrassed (sometimes) about admitting that. But if I’m telling people to face their financial reality, the least I can do is admit that I enjoy Twilight. Yes, I know this may be enough for some of you to leave before continuing on with the rest of this post. And no, this is not their actual situation.

I have no debt. Yes, yes, good for you. I help other people face their financial reality and help them get out of debt. Yes, yes, good for you. But, how do you do it?

With the permission of one of my clients, I have decided to post their situation and their monthly progress on the blog. What’s the purpose? Hopefully, it will give those in a similar situation some tips on how to get out of debt themselves. Or, at the very least, contact me so I can help them out. Also, since the progress is being publicly documented, I hope this will help keep them accountable!

So, where do we start? Net worth calculation of course! They provided me with all their current bank statements, credit card statements, investment balances, etc. Not all are as of December 2011, but like I said, estimates are better than nothing.

December 2011

Assets
Chequing

1,353

Savings 1

127

Savings 2

1,200

Term deposit

16,149

RRSP 1

15,242

RRSP 2

30,849

Total

64,920

Liabilities
Credit Card 1

23,044

11.99% interest rate

Credit Card 2

5,075

21.99% interest rate

Credit Card 3

1,682

29.90% interest rate

Credit Card 4

2,563

29.90% interest rate

RSP Loan

19,720

13% interest rate

Credit Card 5

7,939

19.99% interest rate

Home Renovations

1,975

0% interest rate

Total

61,997

Net Worth

2,922

Obviously, they are living above their means and the bank and credit card companies are making a mint off of it. Well, what are they spending their money on? In comes the spending analysis, a.k.a., the Budget. Based on the past 3 months expenses, they are spending about 58% of their income on fixed expenses (rent, insurance, interest charges, etc), and 54% on variable expenses (groceries, eating out, entertainment, etc). When they looked at what they were spending on some of the categories, they were shocked! Notable ones include over $530 a month on interest and bank charges, over $1,800 a month on car expenses (gas, insurance, repairs, etc) and about $1,000 a month on groceries. Not food, groceries. And no, they do not have teenage boys eating them out of house and home.

Month 1: Action items

  1. Cash only. No more credit cards or debit cards.
  2. I set up a budget for them. Yes, I know, most will hate this step, but we need to have an understanding of where the money is going and learn to curb the spending.
  3. I want them to reduce their fixed expenses down to 42%. This will involve steps such as cutting out unused cable services, removing an unnecessary cell phone and paper billing (cell phone companies charge you money to send you a bill. Seriously?), and remove any unnecessary bank charges.
  4. I want them to reduce their variable expenses down to 13%. This is going to be the interesting part. They will have $700 that will be used for groceries, transportation  including gas and any transit passes, as well as all entertainment, clothing, haircuts, subscriptions or eating out with friends.
  5. Change any credit cards with annual fees to cards without annual fees.

Month 1: Goals

  1. Credit Card 3 will be paid off.
  2. Additional payments, beyond the minimum payment, will be made to credit card 4. I want to systematically pay down their credit cards, starting with the ones carrying the highest interest rates.
  3. Set up an ASP after opening an ING Savings account. This will serve as their emergency fund.

The first month will prove to be the hardest. I will do weekly meetings to ensure that they keep on track and to answer any questions or concerns they may have. It’s going to be an interesting time as I built a budget based on only 3 months data, so I am unsure how this will work for the rest of the year.

What do you think? Are you in a similar situation? What would you do if you were? What do you think of my action items and goals? For those who don’t want to do a net worth calculation because they ‘don’t want to keep track,’ I strongly suggest you do. It’s a worthwhile exercise that will allow you to face your financial reality. Your future and your family’s future depend on it.

If any of my fellow bloggers or computer geeks know how to insert a table properly on to this interface, please let me know! 🙂

I need your help! As this is a new blog, please spread the word on Facebook and/or Twitter! Or email the link to a friend or family member!

https://vixymoney.wordpress.com/

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: