ipac - how Kate and Travis made the right choices

how Kate and Travis made the right choices

Meet Kate and Travis, both professionals aged 35. Although they earn $160,000 pa between them, they can’t seem to get ahead. But marriage is on the cards, so are kids, and they want to knuckle down. They know when it comes to investment, time is money.

Their goal: improve their financial security, increase their assets.

Kate and Travis have some important choices:

1. Cashflow management.
A spending analysis reveals two key areas of potential saving: they eat out virtually every night, and have a second car they barely use. They can free up lazy capital and save $1,000 a month by selling the car and eating at home more often. To instil discipline in their saving, they have their income paid into a high interest account. From there, they transfer regular amounts to a day-to-day account to live on.

If you need a hand getting your cash under control, try ipac's smart money guide. All you have to do is fill in your expenses and it will do the rest.

2. Building assets.
After saving $25,000 this way, Kate and Travis buy an apartment for $450,000. This puts them ahead from day one as their monthly loan repayment of $3,004 is less than the $3,250/month rent they’d been paying. They qualify for the Commonwealth’s $7,000 first home buyer’s grant plus exemptions from stamp duty and mortgage stamp duty (for homes in NSW worth less than $500,000), reducing upfront purchase costs to $4,600.

If Kate and Travis did their homework before buying and the value of the apartment grows at 4% pa for five years, they’ll have equity of $160,000. If they make extra repayments, they’ll do even better. And they’ll be set to consider other smart strategies, like investing in shares and, later, possibly gearing (borrowing to invest).

Not bad for a couple who “couldn’t get ahead”.

This approach helps Kate and Travis but is it suitable for you? Have you conducted a spending analysis? What investments will help you achieve your goals? How will you make the right choices?

Make an enquiry or see an adviser now, or call us on 1800 626 881.

Assumptions: Inflation rate: 3.0%pa. Investment return (property): 4% pa. Purchase costs include: Legal ($1,500), Loan fee ($600), Mortgage insurance ($9,500) less Grant ($7,000). Mortgage interest rate: 7% pa. Mortgage term: 25 years.

*Important Note: Kate and Travis are not real people. This example is based on the type of financial situation that ipac’s financial advisers help people manage all the time.

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