Melanie and Ray Fox have been married for 6 years. Melanie is 35 years old and Ray is 37 years old. This couple lives in Pickering, Ontario.

The Foxs have a 4-year old daughter named Elaine and they are hoping to have a second child in the next year or two.

Employment/Self Employment and Benefits

She earns $72,000 per year and the hospital provides her and her family with health and dental benefits. They also provide disability insurance and life insurance. She pays for her disability insurance each month and it covers her for 60% of her salary.

Melanie contributes 6.9% on pensionable earnings up to the YMPE and 9.2% on pensionable earnings for any amount above the YMPE

Ray Fox

He earned gross real estate commissions of $98,000 on average over the last 3 years. Ray takes advantage of the deductions and business expenses to reduce his taxable income. He spends $18,000 a year in marketing costs and other business related expenses. Being self-employed, Ray does not have health benefits, disability insurance, life insurance or a pension plan through work.

Elaine Fox

She will be starting a nursery school program three days a week next month and it will cost them $500 per month.

Personal Assets

Family Home

Melanie and Ray bought their first home in Pickering 4-years ago. They bought an older townhouse for $650,000 with a down payment of $130,000. They were very fortunate that Melanie was left $70,000 from her grandmother when she passed away and they each used the maximum Home Buyers Plan to come up with the rest. They borrowed the remaining amount of $520,000 from their bank and have been making monthly payments of $2,329.42 based on a 25-year amortization. At the time of purchase they signed for a 5-year closed mortgage paying 2.5%. There mortgage comes due in a year and they are wondering what the best solution would be for them at that time. Ray figures that their home is currently worth $825,000.

They would like to do a kitchen renovation in the next year as the townhouse is about 20-years old and it is showing its age. They have spoke with some contractors and estimate that it will cost them about $25,000 to do.

Automobiles

Melanie inherited her grandmothers 5-year old Honda Civic when she passed away. She is planning on driving this car as long as she can because she uses it to commute to work and that is it. They value this car to be worth $7,500.

The rest of the time they use Rays new Audi Q7 SUV that he bought last year. He leases this vehicle because he uses part of it for his business.

Financial Management

Attitudes Towards Spending, Savings and Debt

Melanie and Ray enjoyed life as newlyweds. They would spend time going out with friends to parties, clubs and vacations. When they got pregnant they realized that life was going to change and they were excited about that. However, they were left with some debt and then with Melanie off work for a year for her maternity leave they incurred more debt. They realize now that something is going to have to change as they would like to have a second child and do not want to take on more debt to do so. They do not want to sacrifice too much of their current standard of living as they feel that they have already given up much of their old lifestyle. The last two years they have saved small amounts in their RRSPs because of the need to repay the money they borrowed through the Home Buyers Plan. They have not been able to save any other money. They each put $175 per month into their own RRSPs.

Expenses

They looked at their credit card and bank statements to try and understand where they are spending their money.

In addition to their monthly mortgage payment, they pay property taxes of $4,200 per year, utilities and insurance of $800 per month, heating of $250 per month and annual maintenance costs of $3,000.

Patti and Ray spend $600 per month on groceries and $350 per month on restaurants and coffee. They also still enjoy going out with friends and they spend $200 per month on entertainment. Ray has to dress well for work and they spend $225 per month on clothes. Each of them has a gym membership that cost them a total of $100 per month. They spend about $1,500 per year on gifts and they still enjoy one vacation a year at a cost of $5,500.

Rays monthly lease payments are $800 per month. The lease rate at the time of purchase was 1.9% for 48-months. The buyout on the vehicle is $26,000 at the end of the four years.

They pay $400 per month in gas for their personal travels and they have general maintenance costs of $1,600 per year.

Melanie has deductions from her paycheck for income taxes, CPP and EI, totaling $1,546 per month. Ray pays quarterly instalments for his taxes and CPP totaling $23,312 annually.

Debts

The Foxs have a Scotiabank Mastercard with a balance owing of $14,250. Most of this spending was done in the past but they havent been able pay the balance down. The available credit on this card is $15,000 and the interest rate is 19%. They make the minimum monthly payments of $400 per month.

They also have an unsecured line of credit with an available limit of $15,000. They have an outstanding balance of $14,540. Most of the spending on this account occurred when Melanie was off on maternity leave and her income was significantly reduced. The interest rate is prime plus 5%, which means they are paying a total of 7%. They make the minimum monthly payment of $250.

Finally, they have a buy now pay later loan as their washing machine broke and they had to replace it. They decided to replace both the washer and dryer at the same time and they used this type of loan because they did not have the cash. They are required to pay the balance in full in 8-months time. If they dont they will owe interest of 24% starting then they bought them 16 months ago on a balance of $2,800.

Asset Management

Registered Assets

Melanie and Ray both have a small individual RRSP that they have been contributing to each month to repay the money they used through the Home Buyers Plan.

Melanie invests this money in a balanced portfolio of ETFs that is rebalanced on a quarterly bases. She has a moderate risk profile and she earns an annual rate of return of 5%. The balance in her RRSP account is $32,300 and has unused RRSP contribution room of $18,000. Melanie has named Ray as the beneficiary of her account.

Ray has chosen to open a self-directed RRSP, where he has been buying penny stocks. He has an interest in investing and he figures that this is a good way to learn. The balance in this account is $27,600 and he has unused RRSP contribution room of $52,000. Ray has a growth profile and has earned an annual rate of return of 7% on average in this account. Ray has not filled out the paperwork to name a beneficiary to this account.

Melanie has a Tax Free Savings Account (TFSA) where she invested $15,000 from her grandmothers estate. She has set this money aside for herself. She is not sure what she wants to use this money for but it will be something special that she will remember her grandmother by. It is currently invested in a cashable GIC earning a rate of return of 1.1% per annum. Melanie has named Elaine as the beneficiary to this account.

Melanies Defined Benefit Pension Plan benefit is based on her best five-years average earnings and it will be indexed to inflation. The pension benefit is calculated based on years of service and 1.5% of pensionable earnings up to the YMPE and 2% of pensionable earnings beyond the YMPE. The pension also provides a bridge benefit if she retires before age 65. If she decides to retire early she will receive an unreduced pension benefit if she meets the 85 factor. Ray is named as the beneficiary to her pension plan.

Non-Registered Assets

They have a joint chequing account where their pay goes in and where they pay their bills. The balance in that account is $2,500.

Risk Management

Beyond Melanies benefits from work and their home and auto policies, they do not have any individual insurance policies. The couple is worried that if Ray were unable to work given a disability they would not be able to make ends meet. They also have the same concerns if either one of them were to die. They believe that if either of them were to die they would need $48,000 per year until retirement to supplement the surviving spouses income.

Estate Planning and Legal Documents

Melanie and Ray believe they are too young to be thinking about estate planning. They have not drafted wills or powers of attorney.

Melanie and Ray would like to starting saving for Elaines education. They have not started yet and are unsure of where to begin. They would like to contribute two thirds of her education costs and they estimate that would be about $12,000 per year (in todays dollars) for four years.

Assumptions

• Melanie and Ray have a combined marginal tax rate of 30%
• Inflation 2%
• Life expectancy age 95
• Current Mortgage Rates:

Please read the attached case study. For this week, please submit the following:

- Goals and Objectives (Listed in order of priority)

- Opportunities and Constraints

- Financial Statements (Prepare their Net Worth and Cash flow statements)

- Financial Ratios (Emergency fund, Debt ratio and Savings ratio)