Pay-down debt or invest?
Jodie and Neil are in their early 40's and have 2 dependent kids. They live in an outer bayside suburb of Melbourne and love the home that they live in.
Neil works full time as a senior manager for a plumbing business and Jodie works part time in an insurance broking office. Neil is on a high income and pays a lot of tax. Both Neil and Jodie consider themselves to be motivated and disciplined and are driven to have a good life for themselves and their children.
Due to their discipline they have, the mortgage on their home is nearly paid off. Jodie also owns an investment property which she bought prior to meeting Neil. The investment property has a debt on it however the rent covers most of the loan repayment.
They have a healthy surplus left after all their expenses and they want to know what the best thing is to do with that surplus amount. Should they continue to pay extra off the mortgage, pay off the investment debt, save in a savings account or invest?
Jodie and Neil came to see us because they were recently advised, at a property seminar, to buy an off-the-plan property to secure their financial future. They were not sure if they should buy another property and were also wondering if the people running the seminar were just selling products.
Both Jodie and Neil agreed that they wanted advice, which was specific to their unique situation and needs, rather than buying off-the-shelf general solutions. In addition they recently found out that a friend of theirs, who bought an investment property, struggled to find a tenant for three months due to the number of available properties in the area. He went through extreme stress.
After introducing ourselves and emphasising our focus on strategic and tailored advice, as opposed to selling products, we spent two hours asking questions to understand Jodie and Neil's current circumstances and goals. We discussed their family situation, work (longevity, job security, career progression), lifestyle, concerns, investment experience and current financial position in addition to cash flow. We also talked about what was important about money to them and if there was anything that was keeping them up at night.
Jodie's and Neil's biggest need was to have more simplicity in their lives. Whilst they did not wish to give up complete control of the management of their finances, they were looking for someone that could help them with consolidation, clarity and control so they could spend more time on their families and careers.
After Jodie and Neil engaged us, we worked on strategies for them so they could secure and preserve their current financial position.
Because Neil's income was critical to paying for all the household expenses, and to also plan for a secure future, we ensured that the income was preserved through a combination of personal insurance policies, which ensured that debt repayments, medical expenses and kids education expenses could continue in the event of Neil ever suffering from an accident, disability, cancer, heart disease etc.
We then put an investment plan in place, which was dictated by their objective to be financially independent by age 55.
We ensured that the investments were structured to provide the level of growth that was required in their net investment asset base, to produce sufficient income at age 55 to cover all their household expenses. Quality investments were selected to reduce the risk of over concentration in direct residential property, through diversification into negatively correlated assets (assets that perform differently to direct residential property). In addition, some of the investments and strategies chosen would provide Neil with much needed tax relief through reduction of his taxable income.
Because Jodie and Neil are time poor, we structured their investments so they would get consolidated reporting and valuation on their investments, making it easier for them to track how they are traveling towards their goal of financial independence.
We reviewed their super and ensured that the investments in super were consistent with their goals. We also made sure that Jodie's multiple super funds were consolidated into one fund (electing the one with the most features appropriate to Jodie's needs).
Because Jodie and Neil have two dependent children, we assisted them in having a proper will and other estate planning documents, to ensure that their assets would pass on to their bloodline in the most tax efficient manner, in the event Jodie and Neil ever passed away prematurely and unexpectedly.