Constructing a financial plan
A married couple has come to you seeking your professional help in constructing a financial plan. Their personal financial details are listed below:
- Dina (30, f) and Tones (33, m) Ying are recently married and live in Sydney.
- They have a daughter, Olivia, 3 years old.
- When you interview them, you find thatDina has a moderate risk profile whileTones has an aggressive risk profile.
- Both Dina and Tones are fully employed, earning $45,000 p.a. and $84,000 p.a. before tax, respectively.Dina works as a TAFE teacher while Tones works as a lecturer at STU university.Both receive compulsory superannuation contributions in addition to these stated remuneration at the rate of 9.50% p.a. of gross salary.
- The assets (and income) of the couple are all jointly held/received and include the following:
- Family home of a 2 bedroom unit in Kogarah valued at $650,000 (cost base $530,000 in October 2011),
- Personal items and household contents $50,000.
- A 2014 Mazda CX-5worth $35,000.
- $60,000 invested in a term deposit earning 2.5% p.a. and matures in 6 months.
- $7,500 in a transactional bank account, for everyday living needs, which pays interest equal to 0.25% p.a.
- 40,000invested in a balanced fund (whose asset mix is 30% Australian shares, 20% international shares, 15% listed property, 20% Australian fixed interest, 15% cash). $20,000 invested in another balanced fund (45% Australian shares, 25% international shares, 5% listed property, 10% Australian fixed interest, 5% international fixed interest, 10% cash). The 5 year average performance of the first fund is 5% p.a. with an indirect cost ratio of 1% p.a. The 5 year average performance of the second fund is 10% pa. with an indirect cost ratio of 0.9%.
- Superannuation assets equal to $80,000 ($45,000 for Tones and $35,000 for Dina) with a bondsasset allocation in an industry super fund.
- Both the house and contents are fully insured. They have no other forms of insurance.
- The liabilities of the couple are as follows:
- $450,000 mortgage. Interest is paid at the variable rate of 4.50% p.a. withprincipal and interest payments and a 28 year term. The mortgage provider allows lump sum repayments and provides an offset account. However Dina and Tones do not make use of repayments or the offset facility.
- The estimated expenses of the couple amount to:
- $1000 per week in living expenses. These exclude repayments on loansand increases with inflation per year)
- Dina and Tones have expresseda desire to have another child in five years’ timeas a high priority.Plans to have another child in five years’ time is estimated to cost them $100,000 when the child is born and needs to be provisioned in their savings plan. Weekly expenses will also increase to $1,500 (inflation-adjusted) after the birth of their second child (excluding repayments on loans, net of any social security benefits and increases with inflation per year).
- Their second priority is to buy a house in Oatley in 10 years’ time to raise their growing family. The price of a house they want in Oatley is currently $1.5 million. They expect homes in both Kogarah and Oatley to grow at a rate of 3% p.a.
- Their third priority is to retire comfortably. When asked how much they would need for a comfortable lifestyle they reply ‘probably about $700 a week and debt free when we’re 70’.
- The Ying’s as good parents have a desire to ensure their childrenare cared for should they pass away. However, when quizzed on why they have no personal risk insurance they say that ‘it is too expensive and not needed. Our savings will take care of Olivia’.
Create a financial plan/statement of advice which will assist Dina and Tones in achieving their life objectives.
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