Caught in the cycle of paying monthly bills and not getting ahead.
The client is a married couple with two children, a mortgage on their family home still owing $190,000, two credit cards and two cars. Their combined salary earnings are $123,000 per annum and they have an emergency cash fund of $500.
Like most people, the couple are paying the principal and interest on their mortgage and pay barely above the minimum repayment amount ($46 extra per month). The bank recommended they pay more on their monthly repayments to pay their mortgage off sooner and save on interest.
Their salaries each month are directed towards paying bills, including education for their children who mean the world to them. Without a surplus income, they can’t afford to make extra mortgage repayments. The couple is tired of being caught in the debt trap and want more for their family.
The Family’s Financial Goals
The client’s primary goal is to pay off their mortgage as soon as possible and if feasible, look at investing. They are resigned to the heartbreaking fact that they will have to sell the family home and downsize considerably, to be able to afford to live during their retirement years.
The client’s secondary goal is to help their children by paying for their education over the next five years. Their 18-year old daughter would like to do further study and their son will be in high school for another two years. This will cost them a minimum $22,000.
After reviewing the numbers and the client’s goals, it was clear there was going to be a shortfall… $1,100,000 in fact! This shortfall is based on the average retirement age of 65 and their desire in retirement to live off the modest combined amount of $60,000 a year.
It was evident that even with the downsizing, they were going to have to rely on the pension. This news was frightening as the wife’s mother was currently living on the pension and they could see the heartache of financial stress she was under.
At age 45 and 43, the couple really needs to create wealth to achieve their financial goals for their family AND to be able to live comfortably, with a level of dignity during retirement.
How Members Alliance empowered the client
The couple had no extra cash to pay off their mortgage sooner, as they needed to pay for the children’s education and they were already living modestly.
The couple required a greater cash flow to: A) pay for their children’s education and B) pay off their mortgage as soon as possible to allow adequate time to save for their retirement.
The clients were pleasantly surprised to find that they would be able to make an investment sooner rather than later, by simply using a little of the equity they had built-up in their mortgage.
By introducing an investment vehicle, significant cash flow was introduced into the projections, making a positive effect on their debt. Significant savings were made through the restructuring of their debt and a tax correct strategy applied. Furthermore, all this was achieved without sacrifice or risk to their lifestyle.
A successful outcome
In 16 years the couple will have saved a massive $249,984 in mortgage repayments. The increased cash flow will have allowed them to pay their mortgage off sooner, saving them this amount in interest.
In addition to the above outcome, in 17 years they will have the combined equity of $895,429, which could be further leveraged to generate increased wealth for their retirement.
Should the couple retire at age of 65, they will be debt free and have created enough wealth to live comfortably and independent of the pension.
The Members Alliance program has helped thousands of people realise their financial potential and will likewise, work with you to reveal this life-changing knowledge.
Note that the figures and projections used in this example are used only to illustrate potential achievable outcomes. Figures that have been used to calculate projected outcomes are based on researched data and are not intended to be a guarantee of future performance. In particular, clients should be aware that residential property investment should be viewed as a long-term investment and capital growth rates may vary significantly year to year. Although this information is provided in good faith, it is also on the basis that no person using the information, in whole or in part, shall have any claim against Members Alliance Property Services Australia Pty Ltd (or any other company within the Members Alliance group), its servants, employees or consultants.
Tax efficiencies gained will depend on a client’s individual income tax rate. Any investment equity created is dependent on initial purchase price and long-term capital growth. In addition to the figures set out in the example above, the underlying assumptions are:
- Interest Rate 6.25% (Current RBA data for a variable discounted housing loan with an allowance for several interest rate rises.)
- Income Return Rate 4.00% (RP Data average gross rental yield for capital cities. Yield may vary depending on property characteristics.)
- Capital Growth Rate 8.00% (REIA long-term residential property capital growth rate. Capital growth may vary depending on property characteristics.)
- Inflation Rate 3.00% (ABS long-term annual inflation rate as measured by the Consumer Price Index.)
Members Alliance is not an accountant and only advises on a tax correct strategy.