When should I start with this strategy?
You will be able to start this strategy as soon you as you have built up a reasonable equity buffer in your home and, hopefully, before the children are born. Advice is important. You will need to contact an adviser who will be able to assist you in this situation.
Make sure the adviser is a licensed adviser who is able to provide you with the right outcome for this strategy. You will also need to carry out the same steps as before with your adviser in terms of your investment plan. Again, as with any loan, don’t over extend yourself.
The cost
The funds you have borrowed against your equity should also receive a very competitive interest rate from your bank or financial institution. Consider an interest only loan, and there are plenty of banks and lending institutions that would welcome your business. I am certain the financial institution which has your current home loan would not want to miss out on lending more money to you.
Regular saving
Once again, ‘drip-feeding’ the regular purchasing of your investments into the market may be a smarter approach and is essentially dollar cost averaging. Discipline is essential as with all investments strategies. Again, any income derived from the franking credits needs to be paid back into the home loan and not into other places such as your wallet.
Over time, as the balance reduces on your home loan and hence more equity is created, you can keep adding this new equity to your investment portfolio. Can you see now the process working and how we are switching bad debt into good debt?
Be patient as this strategy becomes effective after a number of years as your income is increasing and the growth of your portfolio is also moving upwards. As you keep lowering the mortgage, you then continue to draw out more equity to invest in a portfolio of managed funds or shares. It is important to keep adding to your investment portfolio on an annual basis by the same amount you are paying down each year on your home loan.
This strategy requires careful planning and structure. Financial planning advice may be required to be certain of your calculations—they need to be exact. You need to clearly understand the concept of borrowing from your home and the placing of these funds into an investment portfolio. The calculations are very important. Every dollar counts!
• General banking matters, debt management such personal, investment and home loans
• Wealth accumulation – various strategies and options
• Comprehensive advice on all investments including direct investments
• Cash flow management
• Debt reduction solutions.
• Retirement strategies
• Personal risk protection.
• Be able to identify a tax situation or consequence and then refer them to an accountant.
• Understand estate planning issues and discuss how to best deal with them.
Importantly, there must be mutual respect and liking between adviser and client. I have no interest in how much money someone has to invest if they don’t first adopt the attitude of listening to what my advice will be. If you think you can do it all yourself, then an adviser is not for you.
So, is it hard to find an adviser? What is a good test? The following are some key areas for you to consider when interviewing your financial adviser.
• Attend one of the many free seminars that are always offered by financial advisory firms.
• Ask for a referral from a friend
• Ask your accountant or another professional body.
• Visit the Financial Planning Association’s website (see the Resources section of this book).
Things you should look for in a financial planner
Their client focus – Your adviser should be focused on doing the best for you, the client. Make sure the adviser is really trying to get to know you and your current situation. Find the adviser who will sit down with you for at least two or possibly even three meetings to make absolutely sure they understand your needs. A financial planner cannot expect to know all your financial fears, concerns and aspirations and whatever it is that drives you everyday of the week in just one meeting.
Jonathan Cattana: Now I’ll show you some growth assets.
From his book at: Jonathan Cattana’s New Book
Property
Property as an investment provides both income and growth. When holding direct property as an investment, it may provide reasonable capital returns over the long term through rent. Income is received when you rent the property out. Meanwhile, the property itself increases in value.
However, for income from this investment to be consistent month after month, you need to ensure that the investment property is always tenanted and maintained. And, if you stop pouring money into maintaining property, it literally falls down around you and hence loses value.
There are other forms of property you can buy. For example, a non-residential property asset within a vehicle called a listed property trust. Here, a fund manager will purchase a mixture of property assets in various sectors and place them into one portfolio such as commercial, industrial or even leisure properties. When you invest in a listed property fund you buy what is called a unit—a small portion of ownership in that property portfolio, you do not own the whole property. Australian fund mangers have been successful with industrial property in the past and are now looking to invest abroad – internationally. However, the same requirement applies to industrial and commercial property as residential property, the property needs to be securely tenanted and regularly maintained to be a good investment.
What about your own home you ask. Well, your home means shelter, but not income. However there is strategy in the next chapter that can turn around your home loan (a bad debt) into good debt.
There are certain limitations with property:
1. Bad tenants who damage the property, non-paying tenants and property un-tenanted for more than a few weeks.
2. Buying and selling property is expensive. You may need to outlay costs such as valuation fees, stamp duty, agents commission, costs of advertising and loan costs to name a few.
3. You need to do your research to know the value of what you are buying or selling.
4. Other potential land taxes.
5. Property is not liquid meaning that you may not be able to sell it quickly if you require money urgently. Settlement of a sale often takes six weeks (at least in New South Wales).
What is the real return on property?
Not many people actually go to the trouble of working out the true yield on their property investment. To do this they need to add in all the extra costs of maintenance, fees, rates and possibly months where there are no tenants paying you an income.
When you sell any asset, the net gain is:
Original investment + purchase cost + additional cost of maintenance (in this case, rates, taxes etc.) – income received + final sales cost (stamp duty, legals etc.).
Despite all this, property definitely has more growth than cash and fixed interest, but not as much as shares.
Shares are my preferred asset class for growth and a growing income return. My strategy to help you fund your private school fees is based on this asset class.
Jonathan Cattana Book
Read Jonathan Cattana’s book here
Contents
CHAPTER 1 – Schooling in Australia 5
Stages of schooling
Trends in schooling 6
The cost of private school education
Why a private school? 8
Summary
CHAPTER 2 – Making the big decision 11
Choosing to send your child to a private school 12
When is the right time?
Which school is the right school?
CHAPTER 3 – The cost of private schooling 16
The important extras 19
CHAPTER 4 – How do I pay for private school fees? 23
What are asset classes? 24
Which asset class should I invest in and why? 27
Cash
Fixed interest
Property
Shares
Perceptions of an investor—your questions answered
Summary
CHAPTER 5 – The game plan: strategies for financing private school fees 42
Essential steps for all wealth creation strategies
The game plan 44
Strategy 1 – A simple savings plan 45
Strategy 2 – A geared investment portfolio 49
Strategy 3 – Debt recycling—good debt, not bad debt 54
How does debt recycling work?
When should I start with this strategy?
Regular saving
Strategy 4 – A discretionary trust 60
Income from trusts
Other ideas 65
Other points
Summary
CHAPTER 6 – Protecting your greatest assets—you and your spouse 70
Personal insurance
It can never happen to me!
What is personal risk insurance?
Other insurances you may need
What choices do I have for paying for my insurance premiums?
Insurance tips
Estate planning
Good advice
Financial planning
Things you should look for in a financial planner
Conclusion 87
A final word
Resources 89
Acknowledgements 91
Notes 92