Rex and Nicole have come to see you regarding their personal financial status. They also required you to set financial goals which are important to them. Both Rex and Nicole are 45 years old. Rex is a sales manager while Nicole is an early childhood teacher.
Rex is earning an annual income of $74,000 ($2023.20 per fortnight after tax, Kiwisaver etc.) while Nicole is receiving $43,000 per annum ($1235.40 per fortnight after tax and Kiwisaver). They are both contributing 4% of their salary to Kiwisaver.
The couple had just purchased a house for $615,000 which they finance with 80% mortgage from TSB at 5.35% p.a. interest for a repayment period of 25 years. Apart from paying the mortgage, they also need to pay the council $2480.00 per annum. In addition to the house, this couple also purchased two used cars recently.
These two cars cost them $12500 and $16000 respectively. The borrowing rate for these two cars is 13.95% p.a. with repayment spread over 5 years.
The estimated household expenses for this family are as follows:
Food at $ 250 per week,
Internet and phone at 125 per month,
Insurance premium is $190 per fortnight,
Petrol expense at about $200 per month,
Cell phones are $80 per month,
Utilities estimated at $160 per month,
Car registration costs $312 per year for each car
Each car requires two wan-ants of fitness per annum which cost $60 per time,
Maintenance cost at Sl 200 per year for two cars,
Incidental expense was estimated at $300 per fortnight
Rex and Nicole have spent $8000 on a previous holiday at Europe with a newly obtained credit card. They are paying $125 per fortnight on the outstanding balance and the credit card company charges] 9.5% interest per annum on outstanding balance.
In the recent meeting, they also informed you that they have $30,000 in their current account plus household possessions at $35,000. The cars are estimated at 80% of their purchase pHce.
Their Kiwisaver have earned 5.5% retum p.a.. In addition to the 4% contribution from their income, Rex and Nicole both received 2% from their employers and $1 ,000 each from the govemment on joining (receive at the beginning of the year) and ongoing credits of $520 per year per account (receive at the end of the year).
You are required to i) Construct a personal balance sheet, ii) Prepare a personal cash flow statement on a fortnightly basis and iii) Advise the couple on three financial goals: short, medium and long term based on your analysis, show all your workings and justify your answers.
Notes:
Car and house are purchased recently.
This couple would like to retire at 65 and foresees that they need 70% of their current income excluding Kiwisaver to live a comfortable live until 90 years old. Assuming a rate of retum of 4% p.a. in your calculation.
Contribution to Kiwisaver is transferred to fund provider every three months. It is compounded at quarterly rest (assumption: your client have contributed for one year).
You are not required to calculate the credit card charges at 19.5%.