Case Study 1: February 2012 Update

We first met our case study two months ago; you can compare this with last month’s update to see their progress.

The following net worth summary is based on information that was accessible at our last meeting. You will notice that some numbers are unchanged as new information was not yet available.

February 2012



Savings 1


Savings 2


Term deposit








Credit Card 1


11.99% interest rate

Credit Card 2


21.99% interest rate

Credit Card 3



Credit Card 4



RSP Loan


13% interest rate

Credit Card 5


0% interest rate

Home Renovations


0% interest rate



Net Worth


                  + 1,195

Month 2: Action items

  1. Their saving accounts are earning pennies (literally!) every month. The balances will be transferred to their ING savings accounts to earn 1.5% instead. The saving accounts have been transferred over; unfortunately, $400 was withdrawn and spent on purchases this month.
  2. They have noticed that there are service charges showing up on their bank statements and are unsure what they are. They will investigate these charges with their bank this month. Still need to do.
  3. They are going to call credit card companies 2 and 5 to see if they can get a reduction in the interest rate. They called credit card company #5 and were able to secure a 0% interest rate for 6 months! They still need to call company 2.
  4. They have to cancel their current $400 contribution to their RRSPs in order to boost the amount of money they have in their spending plan as well as have some additional money to put towards their credit cards. Done! They are investing with a family friend. They have no idea what they’re invested in, what asset allocation is ideal for their age, or what their fees are. They have no idea what a mutual fund is. They are currently in active mutual funds and they refuse to change them. Once spending is under control and debts are paid off, we will chat about investments. Baby steps.
  5. They are currently contributing $100 each to their ING savings accounts. Based on this month’s cash flow, I would like to see this number increased a bit going forward. Done! They are contributing $100 to one account and $200 to the other account.

Month 2: Goals

  1. Make additional payments towards Credit Card 5 beyond the minimum payment, and have it completely paid off by April. In progress.
  2. Have Credit Card 2 completely paid off by June. In progress.
  1. With a month under their belt, they realized that the spending plan that I set up for them is pretty reasonable, but have negotiated an additional $200 for miscellaneous expenses. They are currently contributing $400 a month to an advisor to invest in mutual funds on their behalf. After a couple of discussions, I have (hopefully!) convinced them that their priority should be paying off their very expensive debt instead of investing in mutual funds for the time being. Once their consumer debt has been cleared, then we can start chatting about investing, with the primary goals of setting up a comfortable emergency fund and maximizing their TFSAs. So if they discontinue this $400 contribution to their RRSPs, they can use $200 towards their discretionary spending and use the other $200 towards paying down their debt. Fail! They blew their variable spending budget by almost $500.

It’s been a tough month. The good news is that their net worth did increase so they are heading in the right direction, but they withdrew part their savings to supplement their variable spending. They still plan to pay off both credit cards 2 and 5 by June.

Month 3: Action items

  1. They have noticed that there are service charges showing up on their bank statements and are unsure what they are. They will investigate these charges with their bank this month.
  2. They are going to call credit card company 2 to see if they can get a reduction in the interest rate.
  3. They are also being charged ‘identity theft protection’ on their credit card number 2. They need to call them and cancel this, although they do not remember ever agreeing to this.
  4. They are currently contributing $300 combined to their ING savings accounts. I would like to see this increased to $400 this month.
  5. They are going to make minimum payments on their 3 outstanding credit cards, and a minimum of $2,000 additional payment on credit card 2 since credit card 5 is sporting the enviable 0% interest rate.
  6. MOST IMPORTANTLY, they are going to try to reign in their variable spending back to the agreed upon amount of $900.

What do you think of their progress? Are you enjoying the case study and the update? Would you like to see more case studies on here?

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8 Comments (+add yours?)

  1. angie
    Feb 21, 2012 @ 16:04:03

    How do you determine what asset allocation is ideal for your age?


    • Vicky Vo
      Feb 21, 2012 @ 16:17:06

      If you currently own mutual funds, the adviser who sold you the funds should have gone through the exercise of how much risk you can tolerate as well as the timeline for your money. A combination of the two will lead to a recommended asset allocation. They would simplify it as recommending, most likely, a ‘balanced portfolio.’ All this means is that your portfolio would hold approximately 50% in bonds and 50% in equities. I have gone through how to calculate your own asset allocations in other posts, but please let me know if you want a more in-depth post about determining asset allocations, and the reasoning behind my recommendation. Thanks for dropping by!


      • angie
        Feb 21, 2012 @ 16:29:18

        I do remember posts for how to calculate the Canadian Equities portion based on your age but wasn’t sure about the rest. But yes, you’re right my fund manager does go through the risk analysis exercise to determine my asset allocation. Thanks.

      • Vicky Vo
        Feb 21, 2012 @ 16:44:59

        Ack! Stop! I hope you meant the Canadian BOND portion based on your age! 🙂 My rule of thumb is your age should be your bond allocation. The remaining of your portfolio will be invested in equities. For example, I am 30, so 30% of my portfolio will be in Canadian bonds. The remaining 70% will be allocated as follows: 24% Canadian equities, 23% US equities, 23% International equities. The caveat is that the money will remain invested until retirement. This allocation is not ideal for money you want to spend in the next 5 years.

      • angie
        Feb 21, 2012 @ 17:32:03

        Oops, sorry to confuse everyone. I did mean bond, not equity. I was referencing this post:

      • Vicky Vo
        Feb 21, 2012 @ 17:49:06

        Awesome! Hope that helped. Thanks for dropping by!

  2. Liquid Indepdendence
    Feb 21, 2012 @ 17:27:01

    Another 4 digit gain, sounds like they are doing really well :0) I’m not sure about their credit history, but the interest on their RSP loan seems a bit high. I Hope next time they can negotiate a better deal. Good luck for them in month 3.


    • Vicky Vo
      Feb 21, 2012 @ 17:48:39

      The RSP loan has been ongoing for at least 5 years and will not be paid off for at least another 3-5 years. Are you able to go back and renegotiate terms on a RSP loan? When I meet up with them next month, I will get them to check out their credit reports. I find that they are definitely resistant to new things, so I am taking my battles one at a time. 🙂 Thanks for reading!


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