SUPPLIED

Tim Fairbrother's nine fundamental steps to achieve financial health.

OPINION: Do you have a solid financial plan in place to create, protect and grow your wealth?

What if something unexpected occurred? What would happen to you and your family?

Welcome to Rival Wealth's third series examining the nine fundamental steps we believe you need to take to achieve financial health.

So join me and our three new case studies each fortnight and get yourself sorted.

READ MORE:
* The importance of KiwiSaver to your retirement planning
* Ignore insurance and your family could suffer


Step 1: Cash management and financial goals

Renee

Renee is a 28-year-old single mum renting in Palmerston North with her 2 young children. She works full time as a property valuer and is well regarded by her peers and clients.

Renee is young, confident and starting to succeed in her career. She's fortunate to have the support of her parents who take care of her children when they're not in paid childcare.

One of Renee's financial goals is to eventually buy her own home. She knows how much debt she willl need to borrow but at this point she doesn't have a savings plan for the deposit. Where should she start?

First of all, is she entitled to any Working for Families Tax Credits? Renee is raising her children alone with no financial support from their father.

Because she is on a good salary of $65,000 she didn't think she would be eligible. She was wrong.

To her delight, she has just discovered she can receive an annual lump sum of just over $4000 a year.

This could be the foundation of her savings plan for the house deposit. But to really achieve her savings goal, she needs to audit all her expenses, make a budget and then stick to it like glue. Those "on the fly" takeaway coffees can really add up.

Top tip: It's amazing how much could be saved by just changing power or phone companies, or reviewing insurance. Saving $20 a month on power, $20 on phone and $30 on insurance – that's $840 a year saved.

Warren and Judith

Warren and Judith are looking to retire in the next five years. Warren works in the New Zealand Army and Christine is a part time bank officer. They live in Wellington and still have one of their children living at home.

Warren and Judith are expecting to have a comfortable retirement. But they have absolutely no plan in place and have never actually sat down to look at their finances.

They are fortunate to be debt free but are still financially supporting their daughter in her last year at university. They save only minimal amounts of their $130,000 combined income and are depending on Warren's superannuation when he leaves the Army.

This is likely to be around $450,000, which might sound like a lot, but is it?

Will it be enough to provide Warren and Judith with the retirement they're dreaming of? They're in good health and could easily live another 20 to 30 years. That's a long time retired.

Judith joined KiwiSaver after her bank superannuation scheme was cashed up a few years ago but overall, Warren and Judith are quite unprepared.

They need to figure out how much they need to live on and really think about what they want out of their retirement, so they know how much additional they will need to save.

Do they want to travel? Is it important to live near their children and future grandchildren? Should they downsize their house and free up more cash? What other investment opportunities are out there?

Top tip: Make your retirement goals realistic. While it would be great to retire and spend years travelling the world, having only the odd overseas trip might be more achievable.

Darryl and Christine

Darryl and Christine are in their mid 40s with two dependent children. They own a busy restaurant in Taupo where Darryl is the head chef. Christine works as a nurse and handles the business accounts.

Darryl and Christine work really hard for their money. But they are also big spenders.

Despite a combined income of $150,000 from their restaurant and $50,000 from Christine's nursing income, they live well beyond their means. This is reflected in their whopping credit card balance of $32,000.

Christine knows the spending is getting out of hand and wants to knuckle down this year and clear as much credit card debt as possible. How is she going to achieve this goal?

Firstly, she needs to get Darryl on the same page. They need to both stop spending and especially avoid any further credit card purchases.

Where has their money gone in the last three months? If they make a budget listing standard costs like food, power, phone, rates and insurance they should be able to see what there luxury purchases are.

They still have a home loan and their credit card debt is on a very high interest rate of 25 per cent, that is $8000 a year in interest.

They need to shop around and see if they can transfer this debt to an interest free credit card for at least 12 months. And if there's money left over after pay day, pay down a lump sum on top of their regular credit card repayments.

Top tip: When paying off credit card debt, ask your bank to reduce the actual limit as you repay debt. This way you won't be tempted to re-spend any more credit.

Direct questions to Tim Fairbrother www.rivalwealth.co.nz 0800 4 RIVAL (0800 474 825)

This information is of a general nature and is the opinion of this Authorised Financial Adviser. This is not intended to be personalised financial advice. A disclosure statement is available on request and free of charge.

 - Stuff