Wednesday, September 4, 2013

Make Me Rich Please: Part 2

A few weeks back I spoke about seeing a financial planner for the first time. And how nervous I was.

This is the first follow up post because I know many people are interested in the process, costs, and benefits of seeing a financial planner.

To start with, I chose a local AMP planner. My superannuation is with AMP, so I thought that there might be benefits, discounts, or even just ease of information sharing by choosing this person. But realistically, any planner from a company that you trust will do.

To prepare for our session, I put together a detailed breakdown of our weekly, monthly, and annual budget. I included all expenses in this, from the expected bills that arrive, to the estimated amount of household and car maintenance, to a budget for wedding, birthday, Christmas, and incidental gifts.

I also pulled together all account numbers of every financial commitment we hold, and the finer details of those commitments.

For example:

Mortgage #1 with XYZ Finance Company. Started on 01/01/2003. Fixed for 5 years on Principal and Interest at 6.04%. Fixed rate period expires 01/06/2014, rolling to variable rate. Mortgage matures 01/01/2033.

Lastly I prepared a list of our short and long term lifestyle choices, as well as our long term financial goals. I didn't worry about being specific about the how, just the what.
We'd love to maybe run
a cafe together in our

Lifestyle Choices

1. Take x2 annual holidays within Australia of up to 1 week at a time.
2. Take x1 overseas holiday every 2 years.
3. Private education for each of our 3 children
4. Own home ownership is desirable, but not a necessity
5. Prefer to run x2 cars
6. Would like to semi retire in our 50's, and be able to run our own business without too much financial pressure to turn a profit.

Vague Financial Goals 

1. Build our superannuation, but not tie up significant amounts of wealth that cannot be touched until 60+.
2. Build a negatively geared investment property portfolio with an equal focus on growth (properties increasing in value) and returns. With an eye towards being able to reduce this portfolio in the future (10-15 years) and create a positively geared portfolio instead by paying down the remaining debt with the returns from the properties sold.
3. Gain some guidance on more diverse investment opportunities (shares?)
4. Ensure that a reasonable sum of money ($5-10,000) will be available to use in 10 years - when Lorelei and Sebastian are starting high school, Maddy is finishing university, I'd like to make that there is money for setting up x2 kids in high school, as well as spare cash for what may be the final year/s of Maddy being a dependant (1 final big family holiday maybe?)
5. Establish a will
6. Discuss the potential for setting up some protection for our assets - such a securing them in a trust.

My preparation paid off, as these were the conversations the planner wanted to have with me. Because Husband couldn't come to the appointment, it was good that we had talked all these things through before hand, and I could answer all the questions. After spending 2.5 hours going over our profile and goals with the planner, I had a very small amount of homework to produce a few details I hadn't thought to bring.

My planner will now go away and look deeper into the details of our finances. We signed authorities giving our superannuation companies permission to provide full information, and he will now prepare me a Statement of Advice. This Statement will cover a number of area's, superannuation, investing, insurance, estate planning etc etc.

This is where it gets sticky for some people. My planner has quoted me, upfront, $1,500 for the advice he will give me. I was prepared for this, and I feel it is a fair amount to pay for the professional guidance I will be getting which will hopefully enable me to improve my financial situation over and above that cost. That $1,500 will NOT pay for my planner to take any other action. He will not change my super on my behalf, establish a trust, create a will etc. If I want him to take any action for me, there will be another fee structure (possibly fee per service, possibly a % based fee). So before considering getting financial advice, you need to be prepared to place a value on that advice. I will pay $1,500 just to be told what a professional thinks I should do with my money.

The unexpected news, was that I don't need to pay that $1,500 upfront. I can elect to pay it directly from my superannuation, which will also, in some convoluted, only vaguely understood way, gain me a 15% tax benefit. (I think because I would have paid 15% on that amount when it was eventually withdrawn as an income in retirement, but I won't pay that tax if I use it for advice). So I am not dipping into my savings to pay the fee, it will instead come from one of the assets that I hope to improve with the advice!

One final thing: although I don't need this particular support, I was interested to hear that my planner has also had many clients whose debt position far outweighed their asset position (whether through divorce, poor financial decisions, legal actions etc). His service in this instance has been to support them navigate through the debt minefield till they eventually come out the other side and move back to asset building. So if you just plain old need help, this is another avenue to consider.

I will write again once I get my Statement of Advice, and hopefully anyone who wasn't sure about whether seeing a planner could help their circumstances, will have a better idea.

Want to read more about the "Make Me Rich" series? Click here ;)

1 comment:

  1. This was very interesting, we have been having the same thoughts lately. thanks for sharing.


I LOVE comments. They make my day even if you only say Hi!