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

Assets
Chequing

851

Savings 1

377

Savings 2

349

Term deposit

16,149

RRSP 1

15,242

RRSP 2

30,849

Total

63,817

Liabilities
Credit Card 1

22,805

11.99% interest rate

Credit Card 2

5,222

21.99% interest rate

Credit Card 3

0

PAID OFF!

Credit Card 4

0

PAID OFF!

RSP Loan

18,758

13% interest rate

Credit Card 5

5,902

0% interest rate

Home Renovations

1,765

0% interest rate

Total

54,452

Net Worth

9,365

                  + 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 The saving accounts have been transferred over; unfortunately, $400 was withdrawn and spent on purchases this month.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?

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/

Case Study 1: January 2012 Update

We first met our case study about a month ago. Even though I have met up with them a couple times since then, I figured a monthly update would be sufficient to monitor their progress and their unique journey to a better financial future.

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.

January 2012

Assets
Chequing

1,996

Savings 1

127

Savings 2

1,200

Term deposit

16,149

RRSP 1

15,242

RRSP 2

30,849

Total

65,563

Liabilities
Credit Card 1

23,073

11.99% interest rate

Credit Card 2

5,292

21.99% interest rate

Credit Card 3

0

PAID OFF!

Credit Card 4

0

PAID OFF!

RSP Loan

19,240

13% interest rate

Credit Card 5

7,918

19.99% interest rate

Home Renovations

1,870

0% interest rate

Total

57,393

Net Worth

8,170

                  + 5,494

Month 1: Action items

  1. Cash only. No more credit cards or debit cards. No more credit cards; still required some debit transactions.
  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. Done!
  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. Done! The toughest part for them was cutting down their cable services. We are working on alternative shows and/or channels that can supplement the change. Last thing I want is for them to be miserable! 🙂
  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. This has been pretty good. With a month under their belt, they realize that they can use another $200 for discretionary spending, and we figured out where the money was going to come from.
  5. Change any credit cards with annual fees to cards without annual fees. Done!

Month 1: Goals

  1. Credit Card 3 will be paid off. Done!
  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. Done! With an additional paycheque this month, they were able to completely pay off credit card 4! Woot woot!
  3. Set up an ASP after opening an ING Savings account. This will serve as their emergency fund. Done! We are starting with a monthly contribution of $100 each to their accounts and will hopefully increase this once we have a better understanding of their cash flow.

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.

It’s been a pretty good month overall! They’re working hard sticking to the spending plan I set up for them and they especially enjoy the credit card balances shrink to zero!

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.
  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.
  3. They are going to call credit card companies 2 and 5 to see if they can get a reduction in the interest rate. This is a tough call for anyone to make, so it will be interesting to see what kind of response they will get.
  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.
  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.

Month 2: Goals

  1. Make additional payments towards Credit Card 5 beyond the minimum payment, and have it completely paid off by April.
  2. Have Credit Card 2 completely paid off by June.

The best part about this month’s goals is that they were their OWN goals. Pretty ambitious, but I know they can do it!

What do you think of their progress? What do you think about the action items and the suggestions I made for them? Are you in a similar situation? If so, have you made any steps towards fixing the problem? Do you think it would be easier to do if you had someone to keep you accountable?

Are you enjoying the case study and the update? Would you like to see more case studies on here?

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/

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/