Case Study - Young Professionals and Families
Background
James and Kylie, a young professional couple, needed financial insights so that they could confidently make decisions for their future. They wanted to start a family but were unsure how they would cope financially without Kylie’s salary. There were other matters too; an inherited investment property and dual super funds they feared were under-performing.
When we first met James*, aged in his early forties, and his partner Kylie*, aged in her mid-thirties, they were earning a significant joint income with limited expenses and no offspring. Whilst James had his retirement savings invested in a Self-Managed Super Fund (SMSF), Kylie’s super was held in an industry fund. At the time of our first consultation, Kylie and her sister had recently inherited their mother’s property. This joint ownership was further complicated by the fact Kylie’s sister was less financial and had indicated an interest in using the property to help reduce or assist with repayments to her mortgage.
Kylie and James were living in rental accommodation but wanted to buy a family home ahead of starting a family.
Overview
Wealth Fundamentals Principal Adviser Matthew Lane provided Kylie and James with an open forum in which to share their most pressing concerns. Whilst they were looking forward to having children and a home of their own, they expressed a hesitancy and fear about making poor decisions for their future financial wellbeing. Ultimately, they were looking for strong leadership and financial mentoring that would equip them to make well informed choices.
Matthew recommended a review of Kylie and James’ overall financial position – mindful of all aspects of their lives including their long-term and short-term objectives.
Our Process
Matthew began by opening up meaningful discussions to help Kylie and James identify and articulate their true goals. For instance, he questioned if Kylie were to have a child, would she want to take extended maternity leave and could the couple afford to live on James’ income? The couple agreed they did aspire to be able to live as a sole income family.
Armed with this information, Matthew assisted them to evaluate what size loan they could accommodate on one wage and what level of cash flow would be required to maintain their current lifestyle.
Matthew looked beyond what could be considered the obvious solution – to sell the property Kylie and her sister had inherited, in order to liquidate funds to bolster their home loan deposit. He was empathetic of the emotional pull the sisters felt towards the inherited property. Sensitivity and practicality combined as Matthew illustrated three scenarios for them to consider; (1) continue renting the property (2) sell the property or (3) buy-out the share of the property held by Kylie’s sister.
Given Matthew’s overarching approach to Kylie and James’ financial position, he conducted a review of their current insurances. Kylie was reliant upon her super fund’s default insurer, whilst James had other arrangements in place. Matthew went on to tailor a personalised insurance solution designed to encompass affordable premiums, tax effective ownership and an appropriate level of cover to suit their circumstances. Further, Matthew translated the complexities of their policies’ terms and conditions so that James and Kylie felt confident that they understood their level of protection and likely entitlements should they need to make a claim.
James and Kylie also sought a more appropriate retirement savings strategy. Given Matthew’s qualification as an accredited SMSF adviser, he was well placed to review James’ super strategy. He also conducted a review of Kylie’s industry fund. His research revealed that rolling over Kylie’s super into James’ SMSF would not only reduce administrative fees, it had potential to provide a consolidated investment strategy designed to help realise their long term goals, in addition to offering Estate planning flexibility. Further, Matthew guided Kylie and James’ decision-making around relinquishing some of the fund’s shares to help reduce their portfolio’s risk exposure, repay some of the SMSF investment debt and give the SMSF access to additional cash.
The Outcome So Far
Based on Matthew’s financial modelling, a maximum mortgage amount was identified that would allow James and Kylie to live a comfortable lifestyle whilst meeting their mortgage repayments on James’ sole income, once they started a family.
The couple has since purchased their first home together and they are now proud parents as well.
After considering the options Matthew presented in relation to the inherited property, Kylie and her sister determined their preferred course of action was to sell the property and James and Kylie utilised those funds to assist them with the reduction of their mortgage.
As part of the ongoing advice process, Matthew worked with James and Kylie to devise an investment strategy with goals that included generating additional income, reducing James’ tax and creating additional long term wealth. Using the equity in their home, following the reduction in their mortgage, Matthew helped facilitate the purchase of an investment property in James’ name.
Given the pair’s expanding wealth and assets, both James and Kylie expressed a sense of relief that their lifestyle, and ability to meet their ongoing expenses, was protected by an appropriately structured package of personal insurances. They also felt reassured that if either of them suffered an illness or injury, Matthew and the Wealth Fundamentals team would be on hand to facilitate the claims process towards securing their full entitlements.
Upon the birth of James and Kylie’s first child, Matthew provided insights to illustrate the importance of Estate planning to help shore up the fate of their assets for the benefit of their son and any future offspring. They have since engaged Wealth Fundamentals to liaise with an Estate planning specialist to facilitate an appropriate Estate plan in line with their overarching financial plan.
In summarising the impact of Matthew’s insights, James and Kylie said they felt empowered to make financial decisions with a newfound clarity for which they were extremely grateful. Additionally, they credited Wealth Fundamentals for assisting them to be in a position whereby they had adequate cash flow, increased retirement savings, as well as having appropriate insurances and Estate planning in place.
In Kylie's words...
“Matthew helped us to consolidate our financial position as a couple and that enabled us to have a clearer picture of what we could comfortably achieve in the future.”
“I’d definitely recommend Wealth Fundamentals and Matthew Lane. Matthew has a broad base of knowledge and experience and we appreciated his flexible approach, knowing we were time poor. We felt reassured by his holistic approach that considered every aspect of our lives and helped us put in place protection measures to safeguard our family’s future.”
(*Clients’ names have been changed to protect their privacy)
Matthew Lane is a financial adviser at Wealth Fundamentals. Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
The information (including taxation) contained within this document does not consider your personal circumstances and is of a general nature only - unless otherwise stated. You should not act on it without first obtaining professional advice specific to your circumstances.