1202AFE Financial Planning 1

Trimester 2, 2020

Wealth creation & lifestyle recommendations –outside superannuation

1. Goal [holiday] go traveling with his friend to Europe from 4 to 6 weeks with $15,000 each
in October, 2021.
Recommended strategy:
 Invest $1000 initially with 640 monthly payments

Advantages of strategy [reasons why]

 He has approximately 40 days of sick leave and 35 days of annual leave owning.
 Saving account – low risk good for timeframe.
 Investing a smaller amount now will allow for investing in a higher interest
investment.
 Add to savings
 Make about $1,000 per month (start-up company with friends once a month).

Disadvantages of strategy
 Lower return
 Tax on interest
 Changing interest rate
Alternatives considered
 Postpone the trip due to Covid-19 because it’s dangerous.
 Term deposits but he cannot take the money out early.

2. Goal [house deposit] buy a house in a similar area, cost around $450,000 in 5 years.
Recommended strategy:
 Cash or fixed interest investment.
 Invest $120,000 per year with 640 monthly saving.
Advantages of strategy [reasons why]
 Less risk because he doesn’t want high risk on house deposit.
 Government guarantee.

Disadvantages of strategy
 Low return.
 Short-term investments.
 Low interest rate.
 High liquidity of cash investments.

Alternatives considered
 Invest on shares but it’s high risk, high costs, larger tax implications (i.e. not franked).
 Property investments – very risky, long term, CGT implication.
 1202AFE Financial Planning 1
Trimester 2, 2020

Appendix 1 - Future value (FV) calculations

Personal Balance Sheet

Assets Home contents 15,000

 
Savings accounts 64,000

Cars 45,000
Superannuation 40,810
Total assets 164,810
Liabilities Store card 1,000
 
 
Total liabilities 1,000
  Net worth (Equity): $163,810