Financial planning is really about… being creative

A Big Bang: helping clients make something from nothing

How about this for a client presentation:

You have a home loan of $300,000 and you are paying 5% interest, or $15,000 a year. This is expensive money: you have to earn $23,700 a year to fund this loan because the 5% after tax interest rate is the same as a 7.9% pre-tax interest rate.

It makes sense to pay your home loan off as fast as possible. This is step number one in creating your long-term financial plan.

We will prepare a cash budget for you to identify how you can increase your cash receipts and decrease your cash payments without unduly affecting your preferred lifestyle. The net cash saved should be used to pay off your home loan as fast as possible.

I aim to identify cash savings of about $4,000 a year, which if used to repay your home loan faster will generate significant long term savings, ie more than $67,000 over the next twenty five years, and create a sound base for your long term financial plan.

The following charts show just how much you can save using this technique.

 

Effect-of-paying-extra-cash-to-a-loan-for-25-years

Invest-saving-from-paying-extra-cash-to-a-loan-for-25-years

Any sensible client will jump at the chance to save $4,000 a year. Sensible clients are the best clients. Sensible clients are the ones who understand the value you have added. They are the ones who tell their friends about how you helped them. They are the ones that you should build your practice around. 

So, for the client who looks like they are stuck, unstick them. Save them $4,000 – which is probably more than your fee – even before you get started on the other aspects of their financial situation. 

The Dover Group