Question 2.c (5 marks)

The business that Clare manages has performed above expectations over the previous 12 months and the owner of the business has decided to pay Clare a bonus of AUD30,000 (after tax). Clare is very pleased with this result but is not sure what to do with the money.

Clare and Alan are considering four alternatives:

- increase superannuation

- reduce the home loan balance

- establish an investment portfolio

- take the family on an overseas holiday

Briefly discuss and compare the advantages and disadvantages of these four alternatives. Taking into account their financial and family circumstances, make a recommendation for Clare and Alan to consider (make sure you state the reasons). (5 marks)

You work as a Financial Planning Adviser and have been asked to assist with two new clients. You have received background information on each client (see below). Client Name Ingrid Clare and Alan Age Status Dependents Occupation 30 Single, owner of apartment Nil Helicopter Pilot 52 and 51 Married, joint owners of house Two children (age 12 and 14) Manager of hospitality business (Clare) and High School teacher (Alan) AUD145,000 pa (Clare) and AUD115,000 pa (Alan) from salary AUD225,000 pa from salary Net Income (after super and after tax) Expenses (living and financial) Major assets AUD175,000 pa including the bank loan AUD165,000 pa including the bank loan Cash at bank AUD 10,000 Share portfolio AUD 100,000 Superannuation AUD80,000 Apartment AUDO.7 million Cash at bank AUD25,000 Superannuation AUD650,000 House AUD1.1 million Major liabilities Major financial goals Bank loan for the apartment AUD350,000 (interest only loan) Purchase a second apartment as an investment within two years (price approx AUDO.8 million) with 20% cash and 80% bank loan Bank loan for the house AUD525,000 (interest only loan) Operate a conservative budget until the children complete high school