Finance 3P95 Personal Finance Case


Joan Drake (current age 29) is a single mother of 2 young children (Brian age 5 and Ava age 3).  She is currently working for Fox Construction. and earns a salary of $75,000 annually, prior to any payroll deductions.  One year ago her husband Chad died in a tragic car crash.  The only insurance Chad had at the time was a small group life insurance policy of $50,000 which she used up (spent) to cover funeral expenses as well as some other costs to make ends meet over the year.  She has come to you to ask for your advice and help her create a Full Financial Plan.  She tells you her main goal is to make sure that her children are taken care of in the event of her death, but she also wants to discuss their education planning and her own retirement planning.  She currently lives in a small house that her and her husband bought 2 years ago.  She feels that at this point in time it is sufficient to meet her needs and really likes the house, but is also worried that it might be more beneficially financially to downsize or rent something.  She would like some help analyzing some options when it comes to her housing and budgeting.  Due to the fact that they didn’t have mortgage life insurance she still has an outstanding mortgage to pay.  She has prepared for you an approximate budget for her current situation but she can’t remember the exact information of her payroll deductions other than she pays into a small defined contribution plan that is matched by the employer (therefore you must calculate the CPP, EI and Tax that comes off her paycheque).  After her husband died she really wants to be better prepared with a plan for everything.  She does NOT have a will or a power of attorney set up and was thinking of buying a Will Kit from Chapters to set this up.  She is asking for your advice on this.


Current Situation

Joan is currently living in a 1200 square foot house.  It has three bedrooms and is in St. Catharines.  She and her husband bought it for $389,000 exactly 2 years ago.  When they bought it they were able to afford a total down payment of $50,000 of which $25,000 came from Joan’s RRSP’s that she had saved up.  She used her RRSP as part of the First Time Home Buyers Plan but now has to look at when she has to start paying it back and how much.  What are her options here?  The interest rate on the mortgage is set at 3.29%, fixed for 5 years, and was initially amortized over 20 years.  She is not sure if she can keep up with the monthly payments and wants your feedback to determine if there are any potential options of saving money.

A breakdown of her household MONTHLY expenses are:

Mortgage                                                            $????????

Heat                                                                      $150

Hydro                                                                    $150

Property Taxes                                                  $325

Water and Sewers                                           $75

Cogeco Cable & Internet                               $150

Bell Phone (landline)                                      $75

Cell Phone (Rogers)                                        $80

Home Repairs                                                    $75

House Insurance                                               $150 (current provider is Traveller’s Insurance)


She has a 2016 Hyundai Tuscon that she bought used for $18,000 exactly 2 years ago.   The interest rate on the loan is 2.9% APR compounded monthly.  It has 90,000kms on it has a current market value of $12,000 on it.  The payments for the vehicle are amortized over 5 years from purchase date and she is not sure how much is still owed on the vehicle. The car insurance is with Co-operators and is included in the Appendix.


A breakdown of the monthly expenses for the vehicle are:


Car payment                                      $??????

Gas                                                        $300

Insurance                                            $150

Plate Sticker ($120/12)                   $10

Maintenance                                     $100


Her husband Chad never had any life insurance other than his small group policy that she used up.  She has a $25,000 group life insurance policy through her Fox Construction grouyp benefit plan but no other personal life or disability coverage at all.  She is really concerned with this as she wants to make sure her children are well taken care of going forward.  One other issue she is struggling with is a current Credit Card debt of $6,500 with an interest rate of 19.99% APR compounded monthly.  She is paying only $200 a month towards this but really wants to pay it off as soon as possible.


Other monthly expenses are:

Groceries                                            $500

Eating Out                                           $150

Child Care                                            $250

Children Activities/Sports             $50

Miscellaneous                                   $225

Clothing                                               $100

Health                                                   $50

Health Benefits at Fox                    $40 (payroll deduction for her benefits)

Credit Card Payment (as noted) $200


She is not sure of the payroll deductions and you will have to help her here.  Using the 2019 tax return information you can determine her payroll deductions and after-tax cash flow.  She is contributing 2% of her gross salary annually to her Defined Contribution Plan (DCPP) at work of which the employer matches 100%.  Her income is indexed to inflation and on average has grown by 1.5% annually over the last few years.  Her current account balance in her DCP is $15,457.  She doesn’t have a lot of experience with investing and asks your opinion and guidance.  She provides you with the options she has available in her DCP plan.  Currently she is in the GIC option as she really does not understand the other options and is not overly keen on taking on a lot of risk in an investment.   She has union dues of $800 annually she has to pay as well and it is taken at source from her payroll.   She would love to retire when she is 60 but really needs to know if this is realistic as she does not know what she is entitled to when she retires or how much she will be able to retire with.  Based on her 2018 Notice of Assessment she has $32,000 of RRSP room carryforward.  With everything that she has to consider currently (education planning, debt planning and raising the kids) she does not know if retiring at 60 is feasible.


She would like to help her children out with education costs and is hoping you can provide some guidance.  Designing a plan that might fit her budget and help her find sources of money for her children’s education is something that she wants you to help her with.  She knows how important school is and wants to make sure her children can afford a school of their choice for a good program.


Through her employer Fox Construction, she has benefits for Drug and Dental coverage which is excellent. She is fully covered other than paying for dispensing fees for prescription drugs and having to pay 20% of the cost of paramedical plans (chiro, orthotics etc) and 20% of any dental costs (to a max of $2,500 per year).  She also knows she is eligible for the Child Tax Benefit and Ontario Energy and Property Tax Credits (monthly income from government) but is not sure of how much this will be as it is income tested each year.


Joan feels that she struggles and really doesn’t have a grasp of where all the money goes at times.  She has never done a Budget and really has no idea what her true Net Worth is.  She is thinking of starting a home-based business of selling Creative Memories Kits to people and wants your advice on the tax implications of being self-employed as well as whether or not you feel that this is worth the time and effort.  She would only be able to work on this on the side after her current job and really has no idea of how much she could make.


Your job now is to help her create a Financial Plan that encompasses all the pertinent information provided and give her some recommendations that will help her.  Things to consider are education planning, retirement planning, estate planning, budgeting, liquidity management, and debt management.  She would like to have a plan that she can follow and measure her progress over the years.  The plan should adjust for the different milestones that she achieves (eg when the education plan is complete where would you allot the money to going forward).  She looks forward to seeing your comprehensive personal financial plan that will help her achieve all of her goals.




Car Insurance   

Co-Operators – includes a $500 deductible for Collision, $2 million in 3rd party liability coverage.  Overall they have been good to her but she wants to see if she can get a better rate and save.


House Insurance – Traveller’s – Comprehensive Coverage for Building and Contents that covers All Perils.  The deductible is $500.  The only thing that she is concerned with is the potential loss or damage to her Mom’s heirloom jewelry and wedding rings that are a total value of $25,000.  Her current coverage is capped at $10,000 for jewelry.  What are her options?


Investment Choices with TRW defined Contribution plan


2019 annual returns

5 year GIC Fund                                        2%

Government Bond Fund                            3%

Corporate Bond Fund                                5%

Canadian Balanced Fund                            6%

Canadian Large Cap Fund                           7%

US Large Cap Fund                                     9%

Emerging Markets Fund                             12%

Asian Growth Fund                                   15%

Precious Metal Fund                                 20%

Science & Tech Fund                                 30%


Are these rates guaranteed forever?  She wants to know because if so, she wants to invest it all in Science and Tech, Precious Metals, Asia, and Emerging Markets as they make a lot of money.  Please advise her according to a personal risk profile.

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