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You may have already obtained one or more of these dreams. If you have been lucky enough to purchase your own home – congratulations! Fast forward a few years’ down the track – you now have some equity in your home. What do you do with this often-overlooked treasure? Continue reading our case study to see how we can assist.

Case Study

Beau is 29 years old, working as a qualified solicitor earning $75,000. His fiancée, Renae is 27 years old, working as an executive secretary earning $55,000. They currently own their own home in the city and have equity of $50,000.

Assets: cash $35,000, basic super balances, car & furniture valued at $40,000, can save $2,500 per month comfortably after mortgage payments.

Debt: $300,000 mortgage; $6,800 on credit card interest 13.5%.

Goal: Build wealth for their future.

After talking to a Financial Adviser at Alman Partners they investigated a few strategy options: Basically, they have two options to achieve their stated goals.

  1. Save their way to wealth and prosperity;
  2. Borrowing (gearing) to build their wealth.

Advice:

  • Buying an investment property was out of the question as they did not have the deposit;
  • Use cash to pay off credit card;
  • Invest $20,000 into a diversified Australian Index Share Fund;
  • Apply for equity lending from a bank, and borrow $20,000. Invest as above;
  • Save $2,000 per month into the investments;
  • Arrange instalment gearing, matching the savings with an additional $2,000 per month of borrowings. At the end of year one they saved $24,000 into their investments and borrowed an additional $24,000.
  • Keep going for 7 years.

Results

Share value of $482,120 (in nominal terms) and debt of $188,000. Resulting in net assets of $294,120.

Generic Assumptions

Inflation: 3.00% (including savings/contributions & withdrawals/income streams); Cash and Superannuation assets have been excluded from this projection; Non-Super Assets: Current value = $40,000 (including borrowings of $20,000); No consideration for interest payments, tax deductions or capital gains tax.

Accumulation Phase Assumptions

Regular savings plan of $2,000/month & gearing plan of $2,000/ month for 7 years; Interest on investments of 8.00% and standard deviation of 11.72%; Interest on loan assumed paid via current cash flow; P75 Monte Carlo probability calculator applied to expected return.

Performance data shown represents expected returns for projection data only. Investment performance in the future may be higher or lower than the performance data shown. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Note: This material is provided for educational information only. No account has been taken of the objectives, financial situation or needs of any particular person or entity. Accordingly, to the extent that this material may constitute general financial product advice, investors should, before acting on the information, consider the appropriateness of the information, having regard to the investor’s objectives, financial situation and needs. This is not an offer or recommendation to buy or sell securities or other financial products, nor a solicitation for deposits or other business, whether directly or indirectly.

See how your finances are looking with a Financial Health Check

The Financial Health Check

To get you on your way to an investment portfolio, here are some tips to help you save those precious cents. You’d be surprised at how much saving $1 here and there can make.

  • Move to a bank account with higher interest rates and less fees.
    Make your money work for you.
  • Write a list before going shopping and stick to it.
    Avoid those unnecessary items.
  • Take your lunch to work/school.
    Might not seem much per day but $10 a day x 5 days a week x 48 weeks = $2,400.
  • Have a budget and stick to it.
    I know it’s hard, but think of the end result! Maybe include a small amount of play money to make things a bit easier.
  • Bottle your own water.
    Saves on average $3.90/L and it’s better for the environment.
  • Maintain your car.
    If your tyres are low or the air filter is dirty, it may be costing you more in petrol. You can also leave the car at home and walk, catch a bus or carpool.
  • Pay off your personal debts and cut up your credit cards.
    Don’t spend what you don’t have. It will cost you more in the long run.
  • Sell unused items on EBay or Gumtree.
    Removes house clutter and earns some cash.
  • Keep an eye out for specials on vouchers or bulk buys.
    Who doesn’t love a bargain?
  • You don’t have to have the latest and shiniest gadgets.
    If your mobile phone is working fine, why upgrade because there is a newer version?
  • Shop around for insurance.
    You may be able to pick up a better deal with another provider for less.
  • Start a moneybox.
    Pop all of those spare coins in there and watch them multiply.
Performance data shown represents past performance or simulated performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Note: This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person or entity. Accordingly, to the extent that this material may constitute general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. This is not an offer or recommendation to buy or sell securities or other financial products, nor a solicitation for deposits or other business, whether directly or indirectly.