A young couple who recently visited us highlighted the importance of remaining engaged with your financial adviser as life moves on and your circumstances change.
Austin and Erin had put a plan in place seven years ago, but they have since had two children and the economic climate has changed considerably. Their plan was no longer relevant to their needs or goals. Among other things, educating their children at a private school was important to the couple - and they were hoping to afford an overseas trip.
After doing a thorough review, we identified the following problems and came up with some new solutions.
Under-performing super fund
The super fund Austin and Erin had invested in was charging very high fees. The investments in this fund were no longer appropriate as they were quite conservative for their age and stage of life. We researched the market and identified an alternative product that provided investments better suited to their age and risk profile, delivering competitive returns and reduced fees to help Austin and Erin accumulate wealth for the future.
It was also discovered that their beneficiaries had expired. This is a common mistake people make. If you make a nomination in a lapsing arrangement, which is common for most industry funds, you are required to re-nominate every three years. Many people with this set up end up having no beneficiary simply because they don’t respond to the reminder. This means when you die the trustee of your fund has discretion over where the money goes – fine if you have an uncomplicated family set up but it can lead to protracted estate settlements. In Austin and Erin’s case we advised they change their beneficiaries to be a binding, non-lapsing arrangement which ensures their nomination remains in place for the future without the requirement to re-nominate unless circumstances change.
Inappropriate insurance
The insurance policies put in place seven years ago were no longer relevant to the couple’s needs. They now had two children, increased debt and higher incomes to consider. We identified how much money Austin and Erin would need in the case of an unforeseen event and researched the market for suitable products. We found a more comprehensive and competitively priced solution which also included a small investment in child trauma insurance.
Debt
Like many people Erin and Austin had a range of debts including a mortgage, personal and credit card bills owing. With interest rates on the rise the cost of these loans were taking a toll.
We suggested speaking with a mortgage broker about consolidating these debts into their mortgage. After speaking to several providers, they were able to refinance including borrowing an extra $20,000 to do some home renovations. The net result was that the couple were now $400 a month better off.
Suddenly Austin and Erin started to feel as if they had some breathing space.
Cash flow stress
When clients are struggling with cash flow we sit down with them and do a budget. This helps to identify where they may be spending unnecessarily. In Austin and Erin’s case they were overspending on lifestyle as well as their health, home and contents and car insurances. By simply making a phone call to your product providers, you’d be surprised by the savings that can be made!
Once these expenses were itemised it became clear that there were some easy things to trim and adjust. They found another surplus of $400 a month simply by changing insurances and cutting back on a few lifestyle items.
When Austin and Erin came to see us, it was clear they were feeling quite overwhelmed. By re-jigging their financial plan so that it was in alignment with their changed circumstances and goals they were able to achieve some clarity. As we had helped them to save $400 a month on their debts and another $400 on their insurances they now had an $800 monthly surplus. We split these savings into mortgage repayments ($400), an education fund for their children ($150) and a holiday fund ($250). Austin and Erin now feel confident that they will be able to educate their children at a private school in the secondary years and are looking forward to being able to afford an overseas holiday in three years’ time. As financial planners this is immensely satisfying and is what gets us out of bed every day to do the job we do. If this story resonates with you it may be time to get in touch.
General Advice Warning: The information provided in this article is general in nature and does not consider your particular investment objectives, financial situation, or insurance needs; we therefore recommend you seek advice tailored to your individual circumstances before making any specific decisions.
Dobbrick Financial Services (Gympie) Pty Ltd ABN 48 931 205 109 and Dobbrick Financial Services (Ipswich) ABN 86 100 184 521 & DFS Oakland ABN 64 340 527 395 and their advisers are authorised representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
