Caught in the cycle of paying monthly bills and not getting ahead.
Dave and Rhonda are a married couple with two children, a mortgage on their family home on which they owe $340,000, two credit cards and two cars. Their combined income is $123,000 per annum and they have an emergency cash fund of $2500.
Like many people, Dave and Rhonda are paying the principal and interest on their mortgage and pay barely above the minimum repayment amount. The bank recommended they pay more on their monthly repayments to pay their mortgage off sooner and save on interest.
Their salaries each month are directed towards paying bills, including education for their children. Without surplus income, they cannot afford to make extra mortgage repayments. The couple is tired of being pulled down in the debt trap and want more for their family.
Dave and Rhonda’s primary goal is to pay off their mortgage as soon as possible and, if feasible, to look at investing. They are resigned to the heart-breaking fact that they may have to sell the family home and downsize considerably to be able to afford to live comfortably during their retirement years.
Their secondary goal is to help their children by paying for their education over the next five years. Their 16 year old son would like to continue his education and their daughter will be in high school for another two years. This will cost them a minimum of $30,000.
After reviewing the numbers and the clients’ goals, it was clear there was going to be a shortfall of, $1,100,00. This shortfall is based on the average retirement age of 65 and their desire to retire on a modest combined income of $60,000 a year.
It was obvious that even with the downsizing, they were going to have to rely on the pension. This news was frightening as Dave’s mother was currently living on the pension and they were already able to see the financial stress that she was under.
At age 42 and 44 the couple really needs to create wealth to achieve their financial goals for their family and to be able to live comfortably, with a level of dignity during retirement.
Dave and Rhonda had no extra cash to pay off their mortgage sooner, as they needed to pay for the children’s education and they were already living modestly.
Dave and Rhonda required a greater cash flow to pay for their children’s education and pay off their mortgage as soon as possible to allow adequate time to save for their retirement.
Dave and Rhonda were excited to find that they would be able to make an investment sooner rather than later, by simply using a little of the equity they had built up in their home.
By introducing an investment vehicle, significant cash flow was introduced into the projections, making a positive effect on their debt. Significant savings were made through the restructuring of their debt and the application of a viable taxation strategy. Furthermore, all this was achieved without any sacrifice or risk to their current lifestyle.
In 7.5 years Dave and Rhonda will have saved $211,754 in mortgage repayments. The increased cash flow will have allowed them to pay their mortgage off sooner saving this amount in interest.
Should Dave and Rhonda retire at the age of 65, they will be debt free and will have created enough wealth to live comfortably and independent of the pension, by having implemented our retirement strategies.