Good Methods of Tax Planning - Case Study Example

Financial Planning Name Course Lecturer Date Keith and Wendy FinancialPlanning The couple should invest their funds insuperannuation and approved deposit fund. This has benefit in that the employer will contribute to the fund and therefore increase the funds. The couple will also have an opportunity to invest in the fund. The funds are managed by professional managers and therefore have high opportunities for growth and expansion. As such they should invest $180,000 in this fund. The couple should use tax tools such as the salary sacrifice, negative gearing and dividends imputation to reduce their tax burdens as well as taxable amounts. These are very good methods of tax planning. The best debt management planning for the couple is to borrow funds to invest. The best investment to invest the borrowed funds is buying debenture bonds. These bonds are secure and have very good returns. Actually, they have higher returns than the other investment options. The borrowed funds should be invested in an investment that has higher returns that the cost of the debt, this will enable the couple to have returns from the investments in addition to repayment of the borrowed funds. The couple should invest an amount of $58,000 in this debt management plan. The $20,000 for emergencies that the couple has is not enough. To be effective, the couple should add this amount to $45,000. This amount will double as emergency and contingency plan for the couple. The couple should invest $20,000 of the amount is a short term fund that is very liquid to serve as contingency plan, they should not withdraw or use the amount whatsoever unless such contingency occurrences. Separately, Wendy should pay her parents the $15,000 that she owes them; she should use her own salary to pay but she should not pay it once. She should commit herself to paying $3,000 quarterly and she will settlethe debt. They should cater for her father’s medical needs using the private health scheme as well as the Medicare. This will not impose additional burden to the couple. The Problem the Couple Has Now and/or Will Have In The Near Future One of the most dangerous problems that the couple is facing is spending more money that they earn. This is very dangerous they spend what they do not have meaning that they rely on credit card and debt for sustenance. This increases their debt and the debt accumulates year after the other. The couple does not earn enough to sustain their lifestyle as well as making their weekly and monthly obligations. It is important for the couple to change their lifestyle in order to avoid the deficits and debts. They should live with what they are able to earn. Their money outflow is much more than money inflow. This makes them to survive on debts as they have deficit of $5,608 every year. This deficit represents more than one monthly income of one person indicating that it is already a huge amount. This is a scarily problem that the couple is facing. In addition, the couple is likely to face lack of enough source of income in the future because they are not making enough contributions to their superannuation funds (Corlett et al., 2001). They have different super funds but both of them are not making enough contributions to the superannuation fund. They do not even make enough salary sacrifice to the superannuation. This will make the funds to have very little amount upon their retirement and therefore they will not have enough income from the super funds. They may also struggle to provide good education to their dependants. Moreover, the couple does not have investments; they rely purely on their income. At this stage in their life, they are supposed to have started making investments but they are yet to and therefore this is a problem. They may lose their jobs or be pout of employment and this may make them to struggle for living. Making investments should be one of the most important and pressing objective of the couple. Lastly, the couple is likely to face huge deficits in future if the current trend continues. Already the couple is financing mortgage and servicing other obligations on a monthly basis thereby reducing their disposal income. This is in addition to paying education fees for their children. As mentioned above, it is important for the couple to refocus themselves and live within their means. If they cannot afford something they should not use the credit card to purchase but instead they should not purchase it unless it is necessary to do so. The Necessary Steps the Couple Need To Take To Improve and Better Their Situation One of the important steps to make is reducing the amount of monthly obligations in order to improve their cash flow. This is within their reach and therefore they should reduce the amount of monthly spending and obligations. One important such is reducing the amount of monthly g charge. Considering their income levels, they are making much high monthly mortgage payment. They have an opportunity to reduce the amount of monthly mortgage payment. Although this step will increase or prolong the repayment period as Ho, et al (2005) indicates, it is good because they will improve their financial situation by lessening amount of payment (it will be within what they can afford without struggling). They will have some extra money to invest instead of investing in future because “a dollar nor is more worth than a dollar tomorrow”. As such, they should reduce the monthly mortgage payment to $1,800. They will have an extra $1,090. This will reduce the deficit; they can also use it to make investment. Furthermore, the couple should reduce the home expenses. The yearly home expenses are too much high and therefore they should be determined to trim it down to $33,000. Therefore, they will have to reduce the amount of spending on a daily basis in order to accommodate the change. The reduction will provide $2,800 extra; this will be invested and or used to reduce the deficit. Notably, the child care charges should also be reduced, the couple should look for an alternative child care that is cheaper than the current one. This will help them to reduce the child care expense. The couple has two cars and they are also servicing two loans from the cars. With their financial situation, they should not have two cars and therefore they should dispose one car. This will improve their financial situation considerably because they will have good amount of money to make viable investment after selling the car. Also, they will not pay monthly loan when they dispose one car. They will also save on the car maintenance and fuel expenses thereby improving their cash flow substantially. It is also essential for the couple to increase their salary sacrifice to their superannuation contribution. This will provide them with securing in their old age when they will not be working or when they will be much less productive (Dalton et al., 2001). Another very important step that the couple should observe is to avoid using the credit card. This is one area that the couple is failing and it is the biggest factor contributing to the deficit and financial woes.As such, they should avoid as much as possible using the credit card, it has temptations of spending but it increases financial burden. Additionally, the couple set aside more than $10,000 every year for holiday. This amount is much higher; it is possible for the couple to still have a good holiday by spending $5,000. This spending therefore provides an opportunity for the couple to improve their cash flow by slashing the holiday expense to $5,000. The remaining amount of more than $5,000 should be used exclusively for making investment. While the couple have prevented the deficit, it is now important for them toinvest this amount plus the amount from sale of one car to make good investment.The couple should invest is money by purchasing investment bonds from the treasury. The government bonds are risk free and provide stable andpredictable earnings. Essentially, the above steps will; improve the financial position of the couple. They will not strain with deficit as it will be eliminated. Their incomes will further be enhanced with the earnings from their investment (Black et al., 2002). The only alternative to these steps is for the couple to look for look for employment that they will earn $95,000 each. This will enable them to cater for all their spending and obligations without straining. However, this may not be possible and therefore it is important for the couple to observe the above steps.  Why These Steps Are Needed These steps are very important as far as this couple is concerned. They presented their case and therefore according to the case, the sole purpose of these steps as well as the overall report is to improve their financial planning and cash flow (Hallman &Rosenbloom 2003). The steps explain to the couple the areas that they have been overspending and such manner they have been spending their income recklessly. They enlighten the couple and make the aware of how to improve their financial planning. By following these steps, the couple will improve their finances, they will not have deficits and they will add investments thereby guaranteeing them extra income (Gitman et al., 2010). This will improve year after year, the markets are anticipated to be very good and therefore their investments will grow and earn them more income. Expected Outcomes from Taking These Steps One of the major outcomes of the steps is elimination of the deficit that the couple was having every year. The deficit of $5,608 will be eliminated and this is a major step towards having a healthy and secure financial planning. The other outcome is that, the steps will increase their investments by $20,000; this is enough to make the couple earn more than $10,000 every year from the investments. Although the couple had investment, it was only the term deposit which was earning negligible income. These will therefore increase their income. The most essential outcome of all the steps is that the couple will have a surplus of $26,000. This is very impressive for the couple because they were operating with deficit there before. This surplus of $26,000 will enable the couple to live their desired lifestyle but that is within their means. The difference with before is that the couple was not aware of the spending, they wondered of how they are ending up with deficit. They are now aware of how to spend and avoid unnecessary spending, make good investment and provide just what is necessary. This is very important for the couple. References Alexander, Carol, 2011, market models: a guide to financial data analysis, John Wiley & Sons. Black Jr, K, Ciccotello, C, S, & Skipper Jr, H, D, 2002, Issues in Comprehensive Personal Financial Planning. Corlett, J, B, Corlett, P, G, Maree, J, W, & MacDougall, B, H, 2001, U.S. Patent No. 6,253,192, Washington, DC: U.S. Patent and Trademark Office. Dalton, J, F, Cangelosi, R, R, Guttery, R, S, & Wasserman, S, A, 2001, Personal financial planning: Theory and practice: Dalton Publications. Gitman, L, J, Joehnk, M, D, & Billingsley, R, S, 2010, Gitman's Personal Financial Planning: Cengage Learning. Gitman, L, Joehnk, M, & Billingsley, R, 2013, personal financial planning: Cengage Learning. Hallman, G, V, &Rosenbloom, J, S, 2003, Personal financial planning (pp. 257-259), New York: McGraw-Hill. Ho, K, Robinson, C, & Perdue, G, 2005, Personal financial planning: Captus Press. Read More