The following is the financial plan of MS Nitee Appanah which consists of the relevant information in regards to the person mentioned above. The basic information of the person along with the person’s current situation which in which the person is present. The basic information are provided in the following points.
The basic income statement of the person is presented below which highlights the expense and income of the person. Thus a basic financial report of the person is presented from the income statement.
Thus as per the income statement the person has been receiving annual income primarily from parents in Mauritius and the person is also receiving a scholarship from the university. Thus these two items are the only source of income for the person. The expenses are related to the person’s basic expense. Thus an amount after all the relevant expenses and the taxes paid by the person which is at the rate of 15% an annual savings of $8330 is done. Thus 1 Mauritian rupee provides 0.040 Australian dollars hence the receipt of 45000 Australian Dollar’s is 1125000 Mauritian rupee as per this exchange rate. In the following figure the balance sheet of the person is highlighted which includes the assets and liabilities held by the person.
The assets of the individual total to an amount of $38700. The individual has furniture, motor vehicle, computer and investments in shares and a cash balance of $8000. The liabilities is primarily the education loan taken by the individual to fund their education. Thus the assets and liabilities of the individual are simple and highlight that the person is not capable of taking high risk.
The individual does not have any insurance taken in her name or any insurance taken by the parents. Thus the person is eligible to take various types of insurance which are highlighted and the product is specified in the table below,
The individual has no will in place as it does not have any assets which can be transferred to anyone as per the individual. However, a will should be created for whatsoever assets the individual owns and should be given to the beneficiary.
A principles act as the life track for an individual and the principles which should be given the most preference in the life of the individual are highlighted in the following paragraphs.
The individual has a life principle to invest in all the relationships they make over their lifetime. They want the relationship to have a meaning and at the end the relationship and the love and happiness which is generated from these relationship over the course of the life time. The individual creates a principle to provide happiness in all forms to all the relationship and ultimately do not focus to derive monetary benefits from it but emotional benefits which is the primary aim of the individual. The individual visits old age homes and does provide charity as and when possible to formulate a relationship with the needy which is of love.
The individual focuses on deriving happiness from small accomplishments and acquisition as it keeps the person positive and jolly. The small pleasures might be eating ice cream after a long period of time while playing with children in the park. Also purchasing of a product which is a necessity but provides a sense of happiness to the individual. Small purchase might be also for other individuals which create a sense of happiness of gifting to others.
The person is focusing in providing happiness and be good to all the individuals possible. The acts which might hurt someone is to be avoided is the principle of this individuals life and if they have hurt someone or received an unfair advantage from that person the individual is willing to apologize and provide the necessary help.
This can be similar to investment in relationship but the moments spent with loved ones and friends is the moments which we carry forward. As per time everything fades but the moments and memories are priceless which leads to happy life. Thus investing in moments is also a primary principle of the individual.
Freedom from the financial difficulties is the long term principle of the individual which is a principle which needs to be followed. As the individual plans to be financially free from the worries of wealth and enjoy while fulfilling other life principles on the go. Thus this principle would allow the individual to be free and be happy with the other principles in life.
The goal objectives of the individual are determined by the following career and life path which the individual expects to happen in the future.
The expenses strategy for each of the stage which is provided and it is broken down as part of the overall expenses and income plan.
The expenses in this stage is the current cost of living which is for the food rent and living expense on an annual basis. Thus the overall expenses in this stage is $38000 while the income is money received from parents. Thus the expenses cannot be curtailed in this stage as it is the minimum expense which is conducted for survival.
In stage 2, the plan to get a job which is in the construction management framework and the expected job income from this job profile would be $150000 per annum. Thus the cost of living expense for the individual to lead a higher lifestyle would be around $80000 which is inclusive of rent, food travelling and leisure. The individual has no such major expenses in this life stage except the purchasing of vehicle and marriage expense. The vehicle expense can be reduced if the individual plans for some tesla models which cost less while a compromise in marriage expense will lead to reduction in expense.
The individual who will get married at the age of 29 can continue to stay in the rented apartment or can move to a different apartment. However the cost of rent of the apartment will not reduce as the individual would like to upgrade from the current living situation or maintain the current situation. Thus the individual expense might rise because of marriage and the overall living expense would rise to $120000 because of increase in rent due to inflation and rise in cost of living. The presence of two cars also leads to rise in expense. While the income will solely be dependent on the spouse as the individual will leave the job and start their own venture. Thus the expenses in this life stage is on the rise for the individual due to rise in the venture cost and the cost of delivery and hospital charges. The hospital charges might cost around $15000. The hospital charges can be avoided if relevant maternity insurance is taken by the individual which will lead to reduction in hospital expense. Thus at this point the expenses which can be curtailed by the individual should be done by reducing expenses where possible. Thus if the venture becomes successful it will lead to rise in income for the individual and they can purchase own home at the age of 40 in Sydney. The maximum loan to value ratio is 30% hence the individual would need to pay $195000 as initial payment of loan. The other taxes and charges needs to be met by the individual which can cost another $10000.
Thus after the purchase of own home the expense of rent is avoided while the individual has to meet the mortgage payments of the loan. The mortgage amount which needs to be paid would be around $30583 which will continue from the age of 40 till 60. Thus the individual would also require the payment of children education fund which would require $80000. Thus the expense regarding to various expense cannot be curtailed as it is the prime age to accumulate wealth where income and expense both rise. As the age increases the health of the individual might deteriorate which can be stopped by purchasing a health insurance.
Thus with the rise in age the medical expenses tend to rise which can be curtailed by purchasing the correct medical insurance by the individual which will benefit them at the old age. Also the expense which is incurred for the construction of restaurant can be met from the retirement plan which has been in investment from a very young age.
The savings strategy of the individual is provided in the following stages which are as the following,
In stage 1 the individual is dependent on the income from the parents and after deducting all the expenses the individual is able to save around $8330. The individual invests around $700 in MTAA Mysuper superannuation fund which has an average return over the years of 9.06%.
In stage 2 the individual is saving around $70000 per annum and has a goal of saving $ 250000 at the age of 26. Thus to save this amount by that age the individual needs to invest in an aggressive portfolio of ETF like DSI which has an average return of 15%. However, the required return is of 18% which is very unlikely with the moderate level of risk. Hence, the individual needs to reduce savings goal or increase the target age to be 27. The individual can purchase the vehicle at the age of 28 and hence no savings strategy needs to be maintained for this goal. Along with this goal the marriage expense can also be met without formulating a savings strategy for the same. Thus goal of accumulating $10 million at the end of age 60 would require investment in mutual funds like Rowe Price Australian Equity Fund which has an average return of 6%-8%. Thus the required return to accumulate $10 million will require the investment in this fund. This fund outperformed the Australian benchmark and primarily consists of dividend paying stocks in the portfolio. An amount of $5614 needs to be deposited in the fund on an annual basis.
In stage 3, the individual will invest the savings which has been generated over the 7 years of employment and has accumulated a sum of $604675. This is after deducting the expense for marriage and vehicle. An investment of $200000 will be made from this fund which will reduce the savings to $404675. Thus this amount would be invested in the business and for the next 5 years and no high capital return is expected from the investment. Also the hospital charges can be avoided if the individual takes medical insurance like TAL maternity insurance which provides a benefit of 12 months after the gestation period. It cost around $4000 were the most of the expenses are covered by the insurance company. It also reduces pregnancy related expenses which incur in future and thus is good saving strategy. Also the savings amount is taken forward for 10 years with no major expense and it has accumulated $1049625. This is by taking the average return to be 10% from the investment and no funds have been taken out and contributed in the investment. On the whole the income from the construction operation is expected to be $75000 from the age of 36 and is expected to be constant. This amount can be invested in a plan which is real estate fund and bond fund in equal proportion. The fund can be A-Reit and I shares core composite bond ETF which provide an average return of 9.5% of 1.24%. Thus this amount is invested in this portfolio in equal proportion to provide a return of 5.37% per annum. Thus if this amount is invested till the age of 50 it would provide a total portfolio value of $1508208.
Thus the individual has accumulated a lot of wealth at the age of 50 and now is only liable to pay the mortgages due on the home which they have purchased. The payment of education fee of children can be met from the income from the business and hence the savings strategy which has been prevailing should be continued over the next 10 years. Thus at the age of 60 the individual will accumulate the $10 million from the retirement savings plan, $ 2266062 from the other savings plan which has been started at the age of 23. Also the portfolio value is also increased to $3504462. Thus the individual has accumulated around $ 6770524 which will make the individual financially independent. Thus the amount of $150000 will be invested in the restaurant and the remaining would be invested in government securities which will increase the wealth of the company as well as being relatively risk free.
The individual will utilize the income from its construction business and restaurant business which are expected to be $75000 and $50000 to sustain their lifestyle over the remaining years.
Since the individual is involved in construction management which involves the construction of properties for residential and commercial purpose. Australia has an immense scope for this job opportunity since it has been urbanizing the continent over the past few years and the same trend is expected to take place in the next few years. Thus the career opportunity for the individual is immense and for 6 years the individual will be involved in the job but after that the individual with the experience will start their own venture. Thus on the whole the business and job opportunity in Australia is immense.
The first home will be purchased in Sydney which will be costing around $650000 of which 30% will be the down-payment. Thus the individual will take a loan from the banks to fund the purchase of this property for a mortgage period of 20 years and thus the mortgage amount will be $30696 which is at the mortgage rate of 3%.
The mortgage loan will be taken from the New Zealand Australia bank which provide a home loan at 3.04% interest rate. Thus the period of the loan will be taken for 20 years and hence the mortgage rate for the loan would be 3.04%. However this rate can increase and decrease in the future depending on the pattern of the economy which is ignored in this analysis.
The individual needs to insure their life and their loved ones and should purchase the life and medical insurance which are mentioned above. The individual can purchase the Allianz home insurance which can reimburse around 90% of the lost contents value and also provides cover from loss from theft and fire. The motor vehicle insurance can be taken as for both the vehicles which are owned by the individual. The motor vehicle insurance which has been recommended before can be taken by the individual at the later date.
Stage 1 and Stage 2 and Stage 3:
The individual can plan out its estate plan with the help of a legal lawyer and can draw a will with respect to the matter. Any attorney which is involved in civil proceedings can plan out the estate plan and include in the will. In the initial stages the individual does not have any assets of high net worth hence the estate plan would just be with the assets and can be distributed to the spouse, and the children and any other person to whom the individual is willing to distribute the estate.
The individual can include the savings account in the will and all the relevant holdings which are there in the estate plan. The individual can name the business and the home to either the spouse or the children upon the individual’s death. Thus also all the holdings can be named in the estate and the share which will be received by the beneficiaries named in the will. This can be done by an attorney or the individual can draft its own will as per their wishes.
Since the amount of wealth which has been earned by the individual over the life of the plan would require an effective taxation strategy to apply the same. All the calculation which had been shown above were not highlighting the tax which had been prevalent on personal income. Thus at the initial stage of career the individual is subject to the tax slab rate of 37% above $22775 and hence the savings are deposited in accounts which have tax advantage. The individual in the future year of business can generate revenue in the name of the spouse and children and since the revenue is $75000, it would lead to fall in the tax slab rate. Thus it would be saving tax, while the tax rate for capital gains is not present in Australia. The income would be assessed when the funds are liquidated and hence it would levy an effective tax rate of 47% on the entire income at the time of retirement.
Since the relevant investments are held for long term and thus no withdrawals which are big are incurred till the time of retirement the investment strategy of long term hold is applicable in the situation.
Thus the overall investment strategy to be as per the principle and the life goals of the client, the individual should start with a job in the construction management company and invest the proceeds in the retirement plan from the initiation. The individual should save the money and start from the proceeds from the savings and use the proceeds to fund the business. Thus at the end which is near to the retirement the individual should invest the proceeds in a portfolio of real estate and bonds. Thus on the whole if the individual follows the financial plan and the circumstances prevail it is going to generate such high return.
The principle of the individual with enjoying the moments and creating relationships create are satisfied by the investment strategy. Also the individual achieves the goal of financial freedom along with the satisfaction of the principle.
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