FINC19020: Financial Planning Assignment Answers and Lecturer Guidelines

Wants or Needs

Alex and Jamie, you have presented your budget to me and we have made a few changes to it during our second meeting on 25/08/2025 to reduce the surplus. You are spending way too little of your income earning capacity and it was creating additional cash that you could spend or invest better.

The main area you can decrease your surplus further so that you can achieve your goals of reducing your personal loans as the interest rate is too high.

• All the other areas of your budget are considered “needs.”

• Leisure, entertainment and holidays are considered “wants” and luxury spending.

• Reducing your spending in this area of your budget, for the short term, depends on how you wish to prioritize your above-mentioned goals.

Cashflow Management

 

Benefits:

• Provides money for trauma, life, and TPD insurance to safeguard families.

• Lowers expensive debt, increasing net worth and reducing interest payments.

• Maximises surplus by allocating idle funds with a clear plan.

• Ensures important objectives are prioritised and financial risks are covered.

Outcomes:

• Debt Reduction: Pay off $7,500 credit card debt immediately, avoiding 27% p.a. interest and saving ~$2,025 annually.

• Superannuation: Extra contributions improve retirement position.

• Insurance Coverage: Ensures family security needs are met.

Cashflow Management / Budgeting

 

Benefits:

• Family protection (emergency savings, debt repayment, income replacement).

• Peace of mind for dependents.

• Cashflow-efficient, minimal lifestyle changes required.

Strategy Recommendation 3

 

Benefits:

• Increased interest earnings.

• Flexible access to funds without penalties.

Outcomes:

• $5,000 emergency fund maintained.

• Earn ~$237.50 in first year, compounding annually.

Debt Management

Benefits

• Ensures assets distributed correctly.

• Protects children and provides tax efficiency.

Outcomes:

• Reduces disputes, ensures timely payments.

• Safeguards inheritance.

 

Strategy Recommendation 5

 

Benefits:

• Reduced costs and streamlined management.

• Improved retirement tracking.

Outcomes:

• Lower fees.

• Potential for higher returns through smart allocation.

Risks:

• Market fluctuations affect returns.

• Possible insurance loss during consolidation.

Benefits:

• Faster debt repayment.

• Tax-effective savings.

• Liquidity retained.

Outcomes:

• ~$6,000 annual savings (at 6% interest with $100,000 balance).

• Mortgage interest reduced ~$60,000 over 10 years.

Assets Not Covered by a Will

• Life insurance owned by another person.

• Assets in trusts/companies.

• Superannuation funds (unless binding nomination made).

• Jointly owned assets (pass directly to survivor).

Enduring Powers of Attorney

• Allows appointed person to act on your behalf.

• Can appoint separate attorneys for financial and health matters.

• Should be someone trustworthy and capable.

Binding Death Nominations

• Ensures super/death benefits are paid to chosen beneficiaries.

• Must follow strict rules and be renewed every 3 years (unless non-lapsing).

Advance Health Directives

• Specifies wishes regarding health care in case of incapacity.

• Important since Enduring Power of Attorney cannot cover life-sustaining treatments.

Assessment Requirements

The assessment required Alex and Jamie to:

• Review and refine their budget to balance wants vs. needs.

• Focus on cashflow management to reduce surplus and direct funds to higher-priority goals.

• Prioritise debt reduction, especially high-interest personal loans and credit card debt.

• Establish clear risk management strategies including life, trauma, and TPD insurance.

• Set aside an emergency fund while ensuring retirement savings through superannuation contributions.

• Consider estate planning tools such as wills, binding death nominations, and enduring powers of attorney.

• Understand the implications of assets not covered by a will and create advance health directives for health care planning.

The ultimate objective was to build a sustainable financial plan that balances lifestyle needs, secures family protection, and achieves long-term financial stability.

Mentor’s Step-by-Step Guidance and Process

Step 1: Clarifying Needs vs. Wants

• The mentor guided Alex and Jamie in categorising expenses.

• Needs: essential costs (housing, utilities, debt repayments).

• Wants: discretionary spending (holidays, entertainment).

• Mentor explained how reducing surplus could be channelled into debt repayment for faster financial progress.

Step 2: Cashflow Management

• Introduced the benefits of efficient cashflow allocation: insurance coverage, debt reduction, and retirement savings.

• Developed a plan to reallocate idle funds into structured goals.

• Emphasised creating an emergency fund for family protection and peace of mind.

Step 3: Debt Reduction Strategy

• Mentor recommended paying off the $7,500 credit card debt immediately to avoid high interest.

• Highlighted annual savings from avoiding 27% interest charges.

• Showed the long-term benefit of mortgage offset strategies for reducing interest by ~$60,000 over 10 years.

Step 4: Savings and Superannuation

• Encouraged additional super contributions for retirement growth.

• Discussed tax advantages and compounding effects of long-term savings.

• Recommended maintaining a $5,000 emergency fund for liquidity.

Step 5: Insurance and Risk Management

• Guided them to allocate budget for trauma, life, and TPD insurance.

• Explained how coverage safeguards dependents and protects against financial uncertainty.

Step 6: Estate Planning Considerations

• Mentor outlined what assets are excluded from a will (trust assets, joint property, super without binding nomination).

• Explained the use of enduring power of attorney for both financial and health decisions.

• Discussed binding death nominations and advance health directives for clarity and legal compliance.

Step 7: Strategy Recommendations

• Strategy 3: Increase savings flexibility and access to funds while earning interest.

• Strategy 5: Reduce fees via fund consolidation and retirement account efficiency.

• Mentor also highlighted risks, such as potential market fluctuations and insurance loss during changes.

Final Outcome

• Alex and Jamie achieved a clearer, more balanced financial plan.

• Their surplus funds were reallocated strategically towards:

  • Debt reduction (credit cards, mortgage).

  • Retirement savings (super contributions).

  • Insurance protection for family security.

  • Emergency savings for liquidity.

• Estate planning strategies ensured their assets and wishes were safeguarded.

Learning Objectives Covered

1. Financial Literacy: Differentiating between needs and wants.

2. Cashflow Management: Efficiently allocating income to priority areas.

3. Debt Strategy: Understanding high-interest impacts and repayment prioritisation.

4. Risk Management: The importance of insurance coverage.

5. Long-term Planning: Superannuation, investment, and retirement savings.

6. Estate Planning: Understanding wills, nominations, and directives.

7. Practical Application: Creating a realistic, sustainable personal budget.

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