Rising Interest Rates Leads to Debt Anxiety

Jasper and Anneka Rehnquist, a married couple living in Calgary, Alberta are sitting in your office seeking help with their financial situation. They have advised you that they are having trouble $$making ends meet$.$ Anneka, who takes care of the finances for the family, said she really started to worry about their debt load when she saw their chequing account balance continuously drop in value over the last few months. Anneka confessed that the change in interest rates over the last year had been gradual at first, but before she knew it$,$ the couple$$s payments to debt had increased multiple times.

The couple agree that their main priority is paying down their debt. They want to do so$,$ not only to help reduce the sleepless nights they have had worrying about their finances, but also so that they can begin to start saving for retirement. They envision a retirement where they can travel. They would like to be debt free when Jasper turns $60$ and Anneka turns $58$ in $16$ years so that they can retire at that time and only require enough cash flow to cover their living and travel expenses, which they estimate will be $$70,000$ after$-$tax in today$$s dollars. Jasper worries that this goal is not feasible given the debts they owe.

Jasper earns a gross salary of $$72,000$ per year for his work as a paramedic. Anneka earns a gross salary of $$84,000$ per year for her work as a dental hygienist. In addition to their government source deductions, Jasper and Anneka also pay $$100$ and $$200$ per month, respectively, in other employment source deductions for the benefits associated with their group insurance plans.

Jasper and Anneka own their own home worth $$450,000.$ Their mortgage has an outstanding balance of $$270,000$ that is accruing interest at $3\%.$ The couple have $$2,000$ in their chequing account and $$1,000$ in their savings account. Jasper and Anneka have $$30,000$ and $$10,000$ in their respective RRSPs$.$ Jasper$$s car is worth $$5,000.$ Anneka$$s SUV is worth $$15,000$ and still has $$18,000$ owing on a $6\%$ loan the couple used to finance the purchase of the vehicle. Anneka has a $$25,000$ government student loan that is accruing interest at $5\%.$ Jasper has a $$15,000$ personal line of credit accruing at $6\%$ that the couple used to cover living expenses while she completed her dental hygienist training. The couple have a jointly$-$owned unsecured line of credit, with a credit limit of $$25,000$ and a balance of $$19,000$ owing and accruing at $6\%,$ that they used to renovate the home they purchased. The expenses from the couple$$s most recent vacation is still on their credit card. The balance is $$4,000$ and is accruing at $20\%.$

Jasper and Anneka pay $$2,192$ per month towards their mortgage; $$2,000$ of which goes towards principal and interest and $$192$ to pay the creditor insurance premiums to pay off the mortgage in the event that either of the couple should die prematurely or be diagnosed with a critical illness. Although they pay semi$-$annual installments of $$2,400$ for their property taxes, they save the required amount monthly to ensure they have enough money to pay the bill each time it comes due. They pay their annual home insurance premium of $$1,200$ on a monthly basis and pay $$100$ per month to each of the heating, hydro$-$electricity, and water companies.

The couple$$s lifestyle expenses include $$1,000$ for food, $$150$ for their cell phones, and $$120$ for cable television and internet connectivity. Their monthly automobile expenses include $$200$ for insurance, $$125$ for auto maintenance and $$150$ for gas for their cars. The couple also spend $$100$ eating out, $$300$ on entertainment, $$100$ on their morning coffees from Tim Horton$$s and $$100$ on miscellaneous items. The couple take two vacations per year at a cost of $$3,000$ each.

Jasper and Anneka also pay the following debt payments each month: $$484$ to the car loan, $$365$ to Anneka$$s government student loan, $$456$ to Jasper$$s personal line of credit, $$570$ to the couple$$s joint line of credit, and $$100$ to the couple$$s credit card.

Questions

$1.$ Identify and write down Jasper and Anneka$$s goals.

$2.$ Prepare a net worth statement for Jasper and Anneka.

$3.$ Prepare a MONTHLY cash flow statement for Jasper and Anneka.

$4.$ How much free cash flow do Jasper and Anneka have each month?

$5.$ What recommendations would you make to help Jasper and Anneka improve their financial situation? How would your recommendation affect their net worth and free cash flow?