Financial Advice for Steve and Crystal

This assignment presents a financial planning scenario for a couple, Steve and Crystal. They aim to purchase a property to generate income and clear debts. The task involves developing tailored recommendations addressing their financial situation, including debt management, budgeting, and investment strategies. It also requires handling potential objections from the couple and outlining future review points for their ongoing financial well-being.

Assignment
Financial Planning Fundamentals
(DFP1_AS_v1A2)
Student identification(student to complete)
Please complete the fields shaded grey.
Student number 10322425
Assignment result (assessor to complete)
Result — first submission (Details for each activity are shown in the table below)
Not yet Competent
Parts that must be resubmitted:
16b,2a,2b,2d,3a,4a,4b,6
Result — resubmission (if applicable)
Result summary(assessor to complete)
First submission Resubmission (if required)
Question 1 Not yet demonstrated Not yet demonstrated
Question 2 Not yet demonstrated Not yet demonstrated
Question 3 Not yet demonstrated Not yet demonstrated
Question 4 Not yet demonstrated Not yet demonstrated
Question 5 Demonstrated Not yet demonstrated
Question 6 Not yet demonstrated Not yet demonstrated
Question 7 Demonstrated Not yet demonstrated
Feedback (assessor to complete)
A good first attempt, however there were are gaps through several sections. So please review the feedback and resubmit as
directed.
DFP1_AS_v1A2

Before you begin
Read everything in this document before you start your assignment for Financial Planning Fundamentals
(DFP1v1).
About this document
This document includes the following parts:
• Part 1: Instructions for completing and submitting this assignment
• Part 2: Case study
• Part 3: Assignment questions
How to use the study plan
We recommend that you use the study plan for this subject to help you manage your time to complete
the assignment within your enrolment period. Your study plan is in the KapLearn Financial Planning
Fundamentals (DFP1v1) subject room.
Part 1: Instructions for completing and submitting this
assignment
Word count
The word count shown with each question is indicative only. You will not be penalised for exceeding the
suggested word count. Please do not include additional information which is outside the scope of the
question.
Additional research
You will be required to complete additional research to answer the assignment questions.
Saving your work
Download this document to your desktop, type your answers in the spaces provided and save your
work regularly.
• Use the template provided, as other formats will not be accepted for this assignment.
• Name your file as follows: Studentnumber_SubjectCode_Submissionnumber
(e.g. 12345678_DFP1_Submission1).
• Include your student ID on the first page of the assignment.
Before you submit your work, please do a spell check and proofread your work to ensure that everything is
clear and unambiguous.
Page 2 of 28

Submitting the assignment
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You need to save and submit this entire document.
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Do not save your completed assignment as a PDF.
The assignment must be completed before submitting it to Kaplan Professional. Incomplete assignments
will be returned to you unmarked.
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any further changes to it.
You are able to submit your assignment earlier than the deadline if you are confident you have completed
all parts and have prepared a quality submission.
The assignment marking process
You have 12 weeks from the date of your enrolment in this subject to submit your completed assignment.
Should your assignment be deemed ‘not yet competent’ you will be give an additional four (4) weeks to
resubmit your assignment.
Your assessor will mark your assignment and return it to you in the Financial Planning Fundamentals
(DFP1v1) subject room in KapLearn under the ‘Assessment’ tab.
Make a reasonable attempt
You must demonstrate that you have made a reasonable attempt to answer all of the questions in
your assignment. Failure to do so will mean that your assignment will not be accepted for marking;
therefore you will not receive the benefit of feedback on your submission.
If you do not meet these requirements, you will be notified. You will then have until your
submissiondeadline to submit your completed assignment.
How your assignment is graded
Assignment tasks are used to determine your ‘competence’ in demonstrating the required knowledge
and/or skills for each subject. As a result, you will be graded as either competent or not yet competent.
Your assessor will follow the below process when marking your assignment:
• Assess your responses to each question, and sub-parts if applicable, and then determine whether you
have demonstrated competence in each question.
• Determine if, on a holistic basis, your responses to the questions have demonstrated overall
competence.
Page 3 of 28

‘Not yet competent’ and resubmissions
Should sections of your assignment be marked as ‘not yet competent’ you will be given an additional
opportunity to amend your responses so that you can demonstrate your competency to the required level.
You must address the assessor’s feedback in your amended responses. You only need amend those sections
where the assessor has determined you are ‘not yet competent’.
Make changes to your original submission. Use a different text colour for your resubmission. Your assessor
will be in a better position to gauge the quality and nature of your changes. Ensure you leave your first
assessor’s comments in your assignment, so your second assessor can see the instructions that were
originally provided for you. Do not change any comments made by a Kaplan assessor.
Units of competency
This assignment is your opportunity to demonstrate your competency against these units:
FNSFPL502 Conduct financial planning analysis and research
FNSFPL501 Comply with financial planning practice ethical and operational guidelines and regulations
FNSFPL506 Determine client financial requirements and expectations
FNSINC401 Apply principles of professional practice to work in the financial services industry
BSBITU402 Develop and use complex spreadsheets
FNSASIC301 Establish client relationship and analyse needs
FNSASIC302 Develop, present and negotiate client solutions
FNSIAD301 Provide general advice on financial products and services
We are here to help
If you have any questions about this assignment you can post your query at the ‘Ask your Tutor’ forum in
your subject room. You can expect an answer within 24 hours of your posting from one of our technical
advisers or student support staff.
Page 4 of 28

Part 2: The case study
Steve and Crystal Riley
You met Steve Riley when he came into your office last week. He had been mowing the grass in the park
over the road and saw your business sign and came for a chat to see if you could help him and his wife.
He and Crystal live in a small rural community outside town and have been married for three years. Steve is
aged 26 and is a horticulturalist with the local council. Crystal is aged 24 and a librarianhowever she is not
working at present as she looks after their twins. Until the twins arrived their focus had been on working
hard and saving for a deposit to buy a house. They rent a nice home on the edge of town and enjoy the
scenic views over the hills.
Their landlord has approached them saying she wants to sell the house and will give them first refusal to
purchase it. Steve’s parents have offered to help them with a loan.
They want some help in making a decision and understanding how it will all work.
You give Steve your Financial Services Guide (FSG) and a fact find form and you agree to meet next week.
First meeting
After introductions and pleasantries you ask Steve if he has read the FSG and briefly go through the
contents for Crystal. They are comfortable to have an initial consultation to see where it takes them.
They have completed the fact find and as you discuss the contents you make additional notes on their file.
The fact find looks as follows:
Steve and Crystal Riley Fact Find
Table 1 Personal details
Name Steve Riley Crystal Riley
Salutation Mr Riley Mrs Riley
Age 26 24
Marital status Married Married – we just celebrated our third anniversary
Home address Hillview Cottage Burgenfield
Health Good Good
Smoker No No
Occupation Horticulturalist Librarian
Employer Burgenfield Rural Council Burgenfield Library
Projected retirement age Probably 67 Not thought about it
Dependents/family relationships Name Age/date of birth
Son Bobby 26/6/2015 Both in good health and developing normally
Daughter Celeste 26/6/2015
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Table 2 Professional relationships
Solicitor None
Time span of relationship N/A
Quality of relationship
Accountant None
Time span of relationship N/A
Quality of relationship
Table 3 Assets and investments
Assets and investments (personally owned)
Assets Value Ownership status Other information Purchase price
Everyday bank
account
$500 Joint We try to keep at least this amount in the account.
We’d like to have more cash on hand for the
unexpected because with the twins something is
always happening
Steve’s ute $4000 Steve It’s 12 years old and still running well. It’s a great little
workhorse
$15,000
Crystal’s sedan $12,000 Crystal It’s only three years old and I love it. The four doors
and hatchback make it great to take the kids out and
for shopping
$18,000
Home contents $7000 Joint Includes gardening equipment that Steve uses for part-
time gardening jobs
Bonus saving account $22,500 Joint We were saving quite well and enjoying a carefree
lifestyle until the twins came along but for the last year
we have often had to resist the temptation to dip into
it. We get extra interest if we don’t make withdrawals
Table 4 Liabilities
Debts Value Payment Ownership status Other information Interest rate
Credit card $2500 Minimum Joint We would prefer to pay it off each month but we
spent a lot rearranging the house for the twins
when they arrived
22.5%
Car loan $5400 $61pw Crystal There are two years until it’s paid out 13.5%
HECS debt $12,000 None Crystal From Crystal’s librarian course CPI
Table 5 Superannuation
Fund Value Ownership Other information
SunSuper $16,300 Steve From my job with the Council. I’ve been with them since I left school and did
my apprenticeship
Council Super $11,800 Crystal From my job in the library since I finished Uni
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Table 6 Income p.a.
Income type per annum Steve Crystal Notes
Salary $48,000 Super on top of this. I hope to get the supervisor’s job in a couple
of years when the current guy retires
Salary $5000 I was on $47,000 before I took time off to have the kids. I’m not
sure how long I’ll be away but I don’t want to lose the opportunity
to work locally. This is my town and I love it
I still do some work from home for the library. I hope I’ll earn
$5000 a year but we’ll see
Centrelink About $17,500 About $675 a fortnight
Interest $394 $394 From the home deposit saving fund
Total combined
gross income
$71,288
Table 7 Estimated annualexpenditures
Expense per year Joint Notes
Accountant’s fees A friend does our tax online
Charitable donations None
Children's pocket money N/A
Council and water rates Included in rent
Discretionary: restaurants, gifts, holidays,
etc.
$1000 We used to go out a lot and take short weekend breaks but we are
more likely to go for a walk than to the pub nowadays
Debt repayment $3765 Car loan and minimum payment on the credit card
Electricity $1000
Gas $600
Weekly shopping $30,000 What with things for the kids we easily spend $550 week
Health insurance We don’t have any
Holidays We now visit an aunt on the coast if we go anywhere
House insurance Landlord’s responsibility
House maintenance and repairs Landlord’s responsibility
Income protection Never thought of it
Medical bills/prescriptions $1500 We are pretty healthy
Mobile phones and internet $1500
Motor vehicle and fuel $10,000
Mortgage N/A
Pay TV Don’t get time for much TV
Private school fees N/A
Rent $15,600 $300 pw
Total expenses $64,965
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Not
applicable
Table 8 Investment objectives and attitude to risk
They did not fill out this part of the fact find. They said it did not apply to them or they did not understand
the question or possible answers. You did not push the issue as it is obvious that debt management and
short-term saving are their priorities.
Determining your investor risk profile Points
This investor risk profile questionnaire has been designed to help you understand the type of investor you are, so that with the
help of your adviser, you can choose the investments that best match your financial objectives.
Which of the following best describes your current stage of life?
Single with few financial commitments. You are keen to accumulate wealth for the future. Some funds
must be kept available for enjoyment, such as cars, clothes, travel and entertainment.
A couple without children. You may be preparing for the future by establishing and furnishing a home.
There are a lot of things you need to buy. You are probably better off financially now than you may be
in the future.
Young family. This is the peak home purchasing stage. You have a mortgage and a very small amount
of savings. Probably dissatisfied with your financial position and the amount of money saved.
Mature family. You are in your peak earning years and have the mortgage under control.
Many partners also work and any children are growing up and have either left home or require less
supervision. You are starting to think about retirement, although it may be many years away.
Preparing for retirement. You probably own your own home and have few financial commitments;
however, you want to ensure that you can afford a comfortable retirement. Interested in travel,
recreation and self education.
Retired. No longer working you must rely on existing funds and investments to maintain your lifestyle.
You may be receiving the pension and are keen to enjoy life and maintain your health.
What return do you reasonably expect to achieve from your investments?
A return without losing any capital
3–7% p.a.
8–12% p.a.
13–15% p.a.
Over 15% p.a.
Page 8 of 28

Not
applicable
If you did not need your capital for more than ten (10) years, for how long would you be prepared to
see your investment performing below your expectations before you cashed it in?
You would cash it in if there were any loss in value.
Less than 1 year.
Up to 3 years.
Up to 5 years.
Up to 7 years.
Up to 10 years.
How familiar are you with investment markets?
Very little understanding or interest.
Not very familiar.
Have had enough experience to understand the importance of diversification.
Understand that markets may fluctuate and that different market sectors offer different income,
growth and taxation characteristics.
Experienced with all investment sectors and understand the various factors that may
influenceperformance.
If you can only receive greater tax efficiency from more volatile investments, which balance would you
be most comfortable with?
Preferably guaranteed returns, before tax savings.
Stable, reliable returns, minimal tax savings.
Some variability in returns, some tax savings.
Moderate variability in returns, reasonable tax savings.
Unstable, but potentially higher returns, maximising tax savings.
Six months after placing your investment you discover that your portfolio has decreased in value by
20%, what would be your reaction?
Horror. Security of capital is critical and you did not intend to take risks.
You would cut your losses and transfer your money into more secure investment sectors.
You would be concerned, howeverwould wait to see if the investments improve.
This was a calculated risk and you would leave the investments in place, expecting performance to
improve.
You would invest more funds to lower your average investment price, expecting future growth.
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Not applicable
Which of the following best describes your purpose for investing?
You want to invest for longer than five years, probably to the age of 55–60. You are mainly investing for
growth to accumulate long-term wealth.
You are not nearing retirement, have surplus funds to invest and you are aiming to accumulate long-
term wealth from a balanced fund.
You have a lump sum (e.g. an inheritance or a lump sum payment from your employer) and you are
uncertain about what secure investment alternatives are available.
You are nearing retirement and you are investing to ensure that you have sufficient funds available to
enjoy retirement.
You have some specific objectives within the next five years for which you want to save enough money.
You want a regular income and/or totally protect the value of your savings.
Investor profile total points
Investor risk profile summary
70 –140 Conservative
You are a conservative investor. Risk must be very low and you are prepared to accept lower returns to protect capital.
The negative effects of tax and inflation will not concern you, provided that your initial investment is protected.
140–210 Moderate
You are a cautious investor seeking better than basic returns, howeverrisk must be low. Typically an older investor seeking to
protect the wealth that you have accumulated, you may be prepared to consider less aggressive growth investments.
210–280 Balanced
You are a prudent investor who wants a balanced portfolio to work towards medium- to long-term financial goals. You require an
investment strategy that will cope with the effects of tax and inflation. Calculated risks will be acceptable to you to achieve good
returns.
280–315 Growth
You are an assertive investor, probably earning sufficient income to invest most funds for capital growth. Prepared to accept
higher volatility and moderate risks, your main concern is to accumulate assets over the medium to long term. You require a
balanced portfolio, but more aggressive investment strategies may be included.
315–350 High growth
You are an aggressive investor prepared to compromise portfolio balance to pursue potentially greater long-term returns.
Your investment choices are diverse, but carry with them a higher level of risk. Security of capital is secondary to the potential for
wealth accumulation.
Page 10 of 28

Table 9 Estate planning
They have not bothered about wills because if one of them died everything would go to the other.
They haven’t got around to doing anything now they have the kids.
Insurance and risk management
Policy Life insured Owner Cover Premium per
annum
Notes
Death and TPD Steve SunSuper $125,000 Death
$175,000 TPD
$3.92pw Standard cover
Death and TPD Crystal Council Super $87,000 Death $2.00 pw TPD cancelled as she is not
working
Income protection
Home and contents
Private health insurance
Steve’s ute insurance
Crystal’s sedan insurance Crystal Fully comprehensive $420 pa Premium included in
motor vehicle costs
You ask them about the offer from their landlord.
Question Answer
Tell me about this offer
from your landlord?
We’ve always got on well with her. We pay our rent on time and she always responded promptly if
we had any problems. She likes to come and collect the rent if she can so she can see our kids.
So we’re friends really.
She says she’s selling up and moving to the coast and can’t manage a rental property from far away.
She knows we were saving to buy a house and it would make life easy for her if we bought it and she
didn’t have to pay real estate agent fees. Of course it would make life easy for us too as we wouldn’t
have to move.
How much is she asking? Well she wants $280,000. Sounds a bargain compared to the prices they pay in the cities nowadays
but it’s only a two bedroom weatherboard cottage and it suits us just fine. We looked at the asking
prices for other homes in the window of the real estate office and it seemed a fair price.
Have you asked about a
mortgage?
Yes we spoke to the bank and they told us if we could make a 20% deposit they would fund the rest.
So that means we would borrow $224,000 and we need $56,000 deposit — well a bit more than that
to cover legal costs.
And you’ve had an offer
from Steve’s parents?
Yes we told them we have saved $22,500 but they could see we were short about $40,000 and they
said they’d lend us the money to help us out. It’s too big an opportunity to pass by.
But it’s a loan not a gift? That’s right. They are in their mid- fifties and plan to retire in 10 years and will want the money back
by then. Steve has two brothers and neither of them is married yet so he’s the apple of their eye
having presented them with two grandkids at once. They haven’t said anything about paying interest
but it’s sort of understood that once we get on top of the mortgage payments and I’m back at work
we can pay them back in instalments.
Page 11 of 28

Part 3: Assignment questions
Question 1a
The first four steps of the safe harbour are repeated below. They all form part of this stage in the financial
planning process and you need to address all four steps in this first question.
• Step 1: Identify the objectives, financial situation and needs of the client that were made known
through the client’s instructions.
• Step 2: Identify the subject of the advice the client is looking for (whether explicitly or implicitly).
• Step 3: Identify the objectives, financial situation and needs of the client that would reasonably be
considered relevant to the advice sought on that subject (the client’s relevant circumstances).
• Step 4: If it is reasonably clear that information relating to the client’s circumstances is incomplete or
inaccurate, make reasonable enquiries to get complete and accurate information.
Briefly describe the clients’ financial situation, their objectives and needs as initially explained by them?
(100 words)
In the given case study, Steve and Crystal are married happily. The financial position of Steve and Crystal cannot be
considered as sufficient enough. They are after some personal advice. It has been observed that Steve is employed as a
horticulturist and on the other hand his wife is a librarian. They also have twin children. They live a lower middle class
background and earn sufficient income to take care of their daily living expenses. However, both of them have the
ability to save a minimum amount of savings for their future so that they can buy a permanent for themselves where
they can live.
Assessor feedback: Resubmission required?
Do they have children? Otherwise good overview. No
Question 1b
(i) What is the subject of the advice the clients are seeking? What advice have they asked for?
(ii) What additional advice do you think they need from what you know about their circumstances?
(100 words)
Steve and Crystal want to buy that particular house, where they are presently living on rent. They want to get financial
arrangement for buying the house and thus they are looking for advice for the same. They are also seeking advice in the
form of debt reduction, budgeting, estate planning, insurance for purchasing their new home.
ii) Steve and Crystal want to raise finance by undertaking loan from any particular bank or from any financial
institution. They even thought of taking loan from Steve’s parent.
They want to find out a bank loan that gives out an EMI loan that is equivalent to the amount they pay as rent that is
paid by them on a monthly basis.
Page 12 of 28

Assessor feedback: Resubmission required?
You have omitted some key advice requirements – specifically debt reduction,
budgeting, insurance, Estate planning advice. These are all important.
Yes
Question 1c
Assume you have asked more questions of the clients and have explained the areas where you think they
need advice.
Read the fact find thoroughly and identify all the issues they are concerned about. Identify what you
consider would be reasonable objectives for the clients.In your answer describe between six (6) and
ten (10) objectives.
(150 words)
The main issue for any investor is related to risk and return. The primary concern of Steve and Crystal is regarding
whether they will be successful in repaying their loan as their financial condition is not good. The current net worth of
the couple is $54,200. The property that they have decided to purchase is amounted to $280,000 and they do not have
any sufficient assets equivalent to that amount.
Due to this reason, their primary objectives can be considered as follows:-
 Increase of net worth
 Minimizing the expenses
 Arranging the total amount of money in order to purchase the house
 To do a lot of saving for their twin baby
 Acquiring returns from the property on long term basis
 Having a future job that could fetch them more amount of money
Assessor feedback: Resubmission required?
These are all reasonable objectives. No
Question 1d
List five (5) other clarifying questions you would ask them.This task requires you to identify what gaps there
are in your understanding of the client’s situation.
(150 words)
 A substitute to the mortgage loan is undertaking a lease. Will the couple choose for purchasing the house on
lease from the owner rather than buying the house with the help of a mortgage loan?
 If the given purpose is only for investment, then do you have any alternative source of investment like bonds,
shares, etc?
 Are Steve and Crystal in the idea of purchasing a house in the same neighbourhood or whether can choose a
house in a locality that is different if the economical rate are available with respect to the current one?
 What amount of interest they are going to pay on monthly basis, and how will curtail their expenses?
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 Do they have adequate assets in order to cover their loan?
Assessor feedback: Resubmission required?
Good clarifying questions. No
Page 14 of 28

Question 2a
Determine how much Crystal will receive from Centrelink in family benefits, listing in your answer the type
of benefit and calculatedamount. You will need this information forQuestion 2b.
Tips: Reread Topic 8 on payments to support families. Refer to the latest Guide to Commonwealth
Government Payments booklet available at<https://www.humanservices.gov.au> Corporate  Publications
and resources  ‘A guide to Australian Government payments’.
Alternatively go to the Human Resources website at <https://www.humanservices.gov.au> and click on
families. Identify at ‘Payment Finder’ which benefits are available for someone in Crystal’s position and
which she is eligible to receive. Use the ‘Calculate’ function to determine how much she will get.
(200 words)
Based from the calculations as above, it can be inferred that Crystal will gain an amount of $445.62.03 on every
fortnight with the assistance from Centrelink.
They are entitled to Family Tax Benefit A, Family Tax benefit B, Rent Assistance and FTB supplement.
On the contrary, according to the policies and the regulations that have been laid down by the Australian Government
with respect to the payment of Centrelink, Crystal is not eligible for pension as the given facility is applicable for
individuals who are more than 60 years. Therefore, as per guidelines, Crystal would receive $445.62 every fortnight by
deducting the pension amount, Thus from the given money, Crystal can take care of her family.
Assessor feedback: Resubmission required?
You have not identified the correct benefits here. They are entitled to:
Family Tax Benefit -A
Family Tax Benefit -A
Rent Assistance
FTB A supplement
FTB B supplement
Provide the fortnightly amounts for each and the annual total.
Yes
Page 15 of 28

Question 2b
Analyse their current position when they are renting the cottage.
(i) Compile tax and cash flow statements and a statement of net worth.
Note: Please review the Kaplan resource on how to complete cash flow tables.
(ii) Describe the conclusions youhaveformed on the outcome of this analysis.
(100 words)
Statement of Tax
Tax
calculation
Steve
Riley
Crystal
Riley
Notes
Income from employment
Salary $48,000 5000
Salary sacrifice $0 0
Salary after
salary sacrifice
$48,000 $5,000
Other income
Bank account
interest
$394 0
Interest from
other
investments
$0 0
Other income
liable for tax
(e.g. rental
income)
$0 0
Assessable
capital gains
$0 0
Total
assessable
income
$48,394 $5,000
Deductable
expenses (e.g.
MEDICAL
BILLS)
$1,500 0
Donations $0 0
Taxable
income
$46,894 $5,000
Page 16 of 28

Income tax on
taxable
income
$6,787 0 FY 2015/16, income
$37001-$80000, tax
$3572+$0.325*($80000-
37001)
up to $18000 tax nilless tax offsets
(e.g.
LITO/SAPTO)
$0 0
plus Medicare
levy
$0 0
plus Medicare
levy surcharge
$0 0
less
Imputation
credits
$0 0
less refundable
tax offsets
$0 0
Net tax
payable
$6,787 $0
Statement of Cash Flows
Family cash flow Steve Riley Crystal
Riley
Combined Comment
Cash flow calculation:
Salary less any salary
sacrificed amount
$48,000 $5,000 $53,000
Non-taxable income (e.g.
income from a
superannuation pension
for a person aged over 60,
Family Tax Benefits, etc.)
$0 0 $0
Interest income $394 $394
Dividends received
(excluding franking
credits)
$0 $0
Assistance from centrelink
(Crystal) 0
$17,500
Other income $0 $0
Total income received
before tax
$48,394 $22,500 $70,894
Page 17 of 28

Investment expenses $0 $0
Deb Repayment $3,765 $3,765
Living expenses $43,100 $43,100
Rent $15,600 $15,600 $300
weekly
Car insurance $0 $0
Home contents Insurance $0 $0
Health insurance $0 $0
Other expenses $2,500 $2,500 Gift,
holidays,
and
mobile
phone
Total expenses $64,965 0 $64,965
Total income received
before tax less expenses
($16,571) $22,500 $5,929
Net tax payable from tax
table above
$6,787 $0 $6,787
Total net cash flow ($1300) $22,500 ($858)
Statement of Net Worth
Particulars Steve
Riley
Crystal
Riley
Combined Comm
ent
Assets
Everyday
bank
account
250.
00
250.
00
500.
00
Steve’s ute 4,000.
00 -
4,000.
00
Crystal’s
sedan -
12,000.
00
12,000.
00
Home
contents
3,500.
00
3,500.
00
7,000.
00
Bonus
saving
account
11,250.
00
11,250.
00
22,500.
00
Superannua
tion-
SunSuper
16,300.
00
16,300.
00
Superannua 11,800. 11,800.
Page 18 of 28

tion-Council
Super 00 00
Total (A) 35,300.
00
38,800.
00
74,100.
00
Liabilities
Credit card 1,250.
00
1,250.
00
2,500.
00
Car loan
-
5,400.
00
5,400.
00
HECS debt 6,000.
00
6,000.
00
12,000.
00
Total (B) 7,250.
00
12,650.
00
19,900.
00
Net Worth
(A-B)
28,050.
00
26,150.
00
54,200.
00
ii) As per the tax statement, the net tax payable is $6787. The net salary of Steve and Crystal is below the
income tax slab of $18000. As per the cash flow statement, there is a shortage of net cash of $858 per
annum, which can be noticed. This indicates the cash position of both of them cannot be considered as
positive and they need assistance in that. However, net worth of Steve and Crystal is positive ($54,200)
Assessor feedback: Resubmission required?
Overall, a detailed and complete tax and cash flow statement, although the net
cash flow deficit should be around -$1300, Review your calculations.
Yes
Page 19 of 28

Question 2c
Calculate the costs of a 25 year mortgage if they borrow $224,000. You should determine an illustrative
interest rate from searching amongst mortgage providers. Whilst a honeymoon interest rate may give
short-term benefits you should also illustrate repayments if rates were higher than today. Use an online
mortgage calculator or develop your own using Excel. Set out your assumptions and workings.
(150 words)
Loan Option-1:
Unsecured
Loan Option-2: HSBC Secured Loan Option-3: IMB
secured
Loan Amount 224,000 Loan Amount 224,000 Loan Amount 224,000
Interest rate
p.a. 5.00% Interest rate p.a. 3.55%
Interest rate
p.a. 3.87%
Terms years 25 Terms years 25 Terms years 25
EMI EMI EMI
Monthly 1309.48 Monthly 1127.41 Monthly 1166.34
Weekly 301.95 Weekly 259.99 Weekly 268.96
It has been seen that the cost of the new house of Steve and Crystal is $280,000 and they have to deposit an
amount of $56,000 and the rest they can afford to take as a loan. Therefore, in accordance to that a
conclusion have been drawn for the best suitable loans available to the parties.
From the above analysis, it can be evaluated that the best possible is given by HSBC. The loan option given
out by HSBC of paying out $259.99 weekly is advisable for Steve and Crystal.
Assessor feedback: Resubmission required?
Well answered. No
Page 20 of 28

Question 2d
(i) Compile a cash flow statement if they go ahead and buy the house. Consider every item in the
statement. How will their income change? Some costs in their budget (like rent) will not apply and be
replaced by mortgage repayments. Some cost items are likely to increase and some may decrease.
Some new cost items will apply. In answering this question use your judgement to create a cash flow
statement that you can show to Steve and Crystal to illustrate the possible outcome if they buy the
house.
Note: You may search for average council rates to use them in your answer. Only a reasonable
assumption is required for this question, students are not assessed on their ability to assume a
correct figure for council rates.
(ii) Write some notes explaining the differences you have identified such as changes in
Centrelinkbenefits.
(100 words)
Statement of Cash Flows
Family cash flow Steve Riley Crystal
Riley
Combined Comment
Cash flow calculation:
Salary less any salary
sacrificed amount
$48,000 $5,000 $53,000
Non-taxable income (e.g.
income from a
superannuation pension for
a person aged over 60,
Family Tax Benefits, etc.)
$0 0 $0
Interest income $394 0 $394
Dividends received
(excluding franking credits)
$0 $0
Assistance from centrelink
(Crystal)
$13500
Private assistance from
parents 56000
Other income $0 $0
Total income received
before tax
$104,394 $18500 $136,356
Investment expenses $8000 $0
Down payment $56,000
Deb Repayment $17,284 $17,284
Living expenses $43,100 $43,100
Loan sanction expenses
(10% of loan amount)
$2,400
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Other expenses $2,500 $2,500 Gift, holidays,
and mobile
phone
Total expenses $128,284 0 $121,284
Total income received
before tax less expenses
($16,890) $18500 $15,072
Net tax payable from tax
table above
$0 $0 $0
Total net cash flow ($24000) $18500 ($6500)
ii) From the above cash flow position, it can be inferred that the net cash flow position is considered negative
if the couple goes for the decision for buying the new house. However, if they buy the house, then they can
easily eliminate the rental costs, which amount to $15,600 annually. In addition to this, Steve’s parents wants
to help them with the amount of $6000 loan if they want to buy their new house.
However, in that case, their cash outflows will increase by a considerable percentage.Their new payments
from the Centrelink will be obtained with an amount of $13500 annually In addition to this, , $13,520 will be
added in the payment of debt once they purchase their new house. In addition to this, they have to pay a
processing fee once their loan gets sanctioned.
Assessor feedback: Resubmission required?
The net cash flow deficit should actually be between -$6000 - $7000. Remove
the rent assistance from the Centrelink total – Centrelink benefit reduces to
around $13,500. Review your calculations.
Yes
Page 22 of 28

Question 3a
(i) Consider their debt management position. If they had the capacity,in what sequence should they pay
off the debts? Explain your reasoning.
(ii) What strategies could they adopt to reduce their current debts?
(200 words)
i) It has been seen that the debt position of the clients Steve and Crystal is not on the brighter side. i. The current
net worth for Steve and Crystal is $54,200 and the loan that is needed is $224,000. Due to this reason, they need to plan
their sequence of paying off their debts. Currently they pay a rent of around $300. Therefore, they need to utilize this
money in paying off their interest of the loan. They need a choose a weekly plan for a repayment of 25 years from
HSBC who gives an interest rate 3.55 percent. Thus, their weekly amount will be around %259.99 for the period of 25
years.
ii)It is noticed that the current debt that the couple possesses is $19,900, which comprises of the outstanding balance of
credit card with a value of $2500, car loan of $5400 and with a HECS debt of $12,000. Therefore, the debt with highest
interest needs to be eliminated first. This will prevent them from insolvency and improve their cash flow position.
They must reimbursed , the HECS debt and the car loan amount by claiming their respective payments from their
superannuation account. Also, after they purchase their house, their debt will be minimized by a certain extent.
Assessor feedback: Resubmission required?
Your strategies need to be driven by eliminating the debt with the highest
interest first. Review your strategies and be clear about the sequence you
recommend and why.
Yes
Question 4a
Describe what risks there are to the client’s financial position.
Reread the fact find and think about what risks they face. You should consider all the risks to their lifestyle
not just the traditional ones that can be insured.
(200 words)
The risks that the couple Steve and Crystal can face, are as follows:-
1. Lower household income (Limited funds for emergencies)
2. Decrease of total net worth and lack of insurance
At present, the total household income for the couple is $53,000on an annual basis and the annual expense amounted to
$64,965. Due to this reason, the couple has no money for repayments of debts. Furthermore, since Steve and Crystal has
twin babies which increases the risk at a higher level. They have limited funds for emergencies. They will face
immense pressure in order to counter these risks.
On the other hand, it has been seen that the profession of Steve is risky as he works as a horticulturist with a fixed salary
and not being a permanent employee. Steve’s ute needs to be insured as well. Therefore, the household income may
decline in the coming years. In addition to this, Steve’s wife may get separated from him in the years to come. If
Crystal does get separated, then, there will be a further decline of household income.
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Assessor feedback: Resubmission required?
They have limited funds for emergencies, Steve’s ute is not insured. These are
important.
Yes
Page 24 of 28

Question 4b
Although you do not need to provide specific, tailored risk management and estate planning advice,
you can identify issues for the clients to consider and provide strategic advice that will assist them.
Briefly describe what risks Steve, Crystal and their family face if either or both of them die and what general
recommendations do you believe they should consider to mitigate these risks.
(200 words)
The respective ages of Steve and Crystal are 26 and 24 years respectively. Currently, they are living in a rented
property. They have twin babies and due to this reason they wanted a buy a new home for themselves. This will
increase their assets and thus improve their financial condition as well to a certain extent. Since they have new born
babies, therefore, their financial risk is on the higher side. In addition to this, if Steve and Crystal expire at a very young
age, then, the burden of debt will be levied upon their children. They also need medical insurance as well as house
insurance. They do not have any estate planning ideas before this. They need to take proper estate planning advice in
order to buy their new home and plan accordingly. In addition to this, the risk of insolvency also prevails
Due to this reason, it is suggested that Steve and Crystal should buy a life insurance in order to prevent them and their
children from such risks. In that case, risk of repayment of loan will be saved as well. It is also recommended that the
couple should make their children their nominee of all their assets. This will help them to secure the lives of their
children. They need to minimize the risk of estate planning, by paying off their debts in a timely manner.
Assessor feedback: Resubmission required?
Other than life insurance, what other insurance do they need? They will have
different needs if Steve dies vs if Chrystal dies and if they both die – so address the
3 scenarios. In addition you have not covered Estate planning gaps and there are
several.
Yes
Question 5
In Question 1c you identified between six (6) and ten (10) objectives for Steve and Crystal.
For each objective, set out your recommendations to assist Steve and Crystal achieve that objective.
Refer to‘Step 3 Development of recommendations’ in Topic 10 for one way to present your answer.
You can provide your recommendations as dot points.
(500 words)
Several recommendations can be given to meet the respective objectives of Steve and Crystals.
 Improve their respective liquidity position
The couple must improve their respective liquidity position before they are planning to purchase their house. It has
been observed that the cash flow position of them is on the lower side. They have two major options to purchase
their respective house, which are either mortgage or lease. In case of mortgage, they have to pay weekly, therefore,
mortgage loan is preferable for them.
 Better and permanent job for Steve
Currently, Steve is working as horticulturist with an annual income of $48,000 and his wife Crystal on the other
hand earns an annual income of $5000. With this job, they cannot met their respective debt repayments. Therefore,
it is recommended to change their job in order to meet their debt requirements.
 Increasing their respective net worth
It is recommended that the couple should increase their net worth in order to meet their respective short term and
long term objectives. The couple needs to reduce their their liabilities in order to increase their net worth to meet
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