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Personal Financing Essay

CREDIT CARD COMPARISON

Mr. Bernard Fanning has many options regarding credit card selections and which credit card would be best for his personal needs. The credit cards that were researched to help Mr. Fanning find the right credit card for him included Commonwealth Bank credit cards, Suncorp Metway credit cards, American Express credit cards and Virgin credit cards. After researching the different types of credit cards that these banks offered, it came down to their standard credit cards which were best suited for Mr. Fanning.

Standard credit cards were chosen as Mr. Fanning would only be using his credit card from time to time. Standard credit cards that were offered from the banks mentioned above were all involved with a cheap interest rate deal and all with a 55-day interest-free period.

Other credit cards that were put on offer by the different banks included platinum and gold credit cards. These cards would not be as virtuous as standard credit cards as they assign higher interest rates. The comparison table below demonstrates the difference between all four of the bank’s standard credit cards including interest rate, annual fee, and balance transfer.

The comparison graph below indicates the difference between interest rates among the four standard credit cards.

VIRGIN CREDIT CARD

Although all four of the credit cards had reasonably the same interest rates and interest-free days, the card that would be ideal for Mr. Fanning is the Virgin credit card which offers him a 0% interest rate for the first six months.

Unlike the other researched credit cards, Virgin has no annual fee which would save him on average $50 per year. Mr. Fanning has assured a low ongoing interest rate which at present is 12.99% p.a. Virgin credit cards also offer a low balance transfer which starts of for the first six months as 0%.

MONTHLY EXPENSES

Monthly expenses that Mr. Fanning is advised to place onto his virgin credit card include his over the phone payments. Over the phone payments include electricity bills and electricity bills. Mr. Fanning may also include other necessities of interest which may include his entertainment costs. Mr. Fanning’s credit card limit is set at $1000 per month.

This is due to the fact that Mr. Fanning will be able to afford this much debt on his credit card and would be able to pay it of on a monthly basis. Monthly repayments of up to $800 can be made by Mr. Fanning as he will not always spend $1000 on his credit card. Mr. Fanning will also have a 55-day interest-free period which would be an adequate amount of time to help him pay of his debts without having to pay interest on the items that he has bought.

TRADE-IN

TOYOTA COROLLA

Mr. Fanning’s 1992 Toyota Corolla can get a trade-in for a maximum price of $700 to $2100. This is the trade in price for a Toyota Corolla CSi Hatchback 5dr Auto 4sp 1.6i, which was found on Redbook.com. The trade in price of the Toyota Corolla is based on the Km it had done up until now. An advantage of Mr. Fanning trading in his Toyota Corolla is that the money that he is gets from this s

MAZDA 6 PURCHASE

INVESTMENTS
Mr. Fanning’s total monthly income at the end of each month is not used and therefore left there and the remaining balance is brought forward at the beginning the next month. On average, there is a total of $1210 each month. Mr. Fanning is able to use this money towards investing in shares which will (if he invests in a stable company) help his money increase.

There are many companies which are listed with the Australian Stock Exchange (ASX) which Mr. Fanning is able to invest with. By investing in a stable company that has shares listed in the ASX, Mr. Fanning will be able to keep those shares for as long as he would like. Investing in shares now, will help Mr. Fanning with his future goals. The money from the stock investment can be used towards putting it away for his superannuation, or it can help him with his trip overseas in 10 years time.

SUPERANNUATION

Superannuation is the payment that is used by retired people. Mr. Fanning is able to put away money from the inheritance for his superannuation. The money will grow in his account with interest. To start his superannuation account, Mr. Fanning is able to deposit $5000 from the inheritance. Monthly deposits of $100 will ensure that when it is time for Mr.

OVERSEAS TRIP – 10 YEARS

Mr. Fanning has shown interest in taking a holiday which at present is valued at $10 000. Assuming the inflation rate of the coming years remains at a constant 4% per annum, in ten years the value of the holiday would have gone up by nearly $5000. the price of the holiday is increased which not only means that Mr. Fanning is to save more but also to put away more money to reach is future goal of taking a overseas holiday.

YEPPOON HOME

A home in Yeppoon was found and was an ideal price as well. The house is double storey, with only a short walk to the beach. The house has four bedrooms, two bathrooms and one garage. With the money from the inheritance, Mr. Fanning is able to pay a deposit on the house and borrow a loan from Wizard Home loans for the remainder of the price. After referring to appendix c, it states that 100% of the loan is given to homes valued up to $500 000.

An affordable price home was found in Yeppoon. This house contained four bedrooms, one garage, and two bathrooms and was a short walk to the beach. Mr. Fanning is able to afford this home if he would like to use the money from his inheritance for the deposit. An affordable 10% deposit can be made from the inheritance money and will ensure that Mr. Fanning will be able to get a suitable loan for up to 30 years in a bid to pay of the rest of the mortgage. Wizard home loans have offered to give Mr. Fanning a fixed 7.35 % interest for five years.

BEENLEIGH HOME

Mr. Fanning owns a house in Beenleigh which has three bedrooms; one lock up garage and one bathroom (refer to appendix). After researching the appropriate rental figure on this property, it has been worked out that Mr. Fanning is able to get $250-$300 a week in rent for his Beenleigh home. Mr. Fanning is able to use this property as an investment solution as it brings in a weekly income.

The mortgage on the house in Beenleigh can be paid of by the inheritance. This ensures that Mr. Fanning will have no debts on the Beenleigh home when he gives it up for rent and moves to Yeppoon.

 

Example 2

1.0 Introduction

The information below has been specially gathered and designed for Mr. Bernard Fanning who may use the following data to make future decisions. This report contains matters concerning Personal Financing which is the ability of an individual to provide funds in order to achieve personal goals and investing which is defined as the putting out of money into a project which in return you may receive a higher amount.

2.0 Data Collection

The information and figures produced on this report was collected and presented by, Salman Clay. The resources and information used to produce this report is recorded on the reference and appendix pages, see table of contents for details.
2.1 Personal Budget

Income: Total:

Monthly Income 3750 3750

Expense:

Food 400
Electricity 100
Phone 140
Clothing 200
Entertainment 600
Car expenses 150
Insurance/Registration 150
Miscellaneous 200
Mortgage 1200 3140

Income – Expense: 610

Saving a Year: 7320

2.2 Car deal

It has been stated that Mr. Fanning would like to trade in the Toyota corolla, ascent, lift back, four speed, 2000 model for a better much more luxurious Mazda 6, semi-automatic, five speed, 2008 model.
Using the information shown on the appendix A, there is a good chance that you may receive an average price of $7200, if the Toyota corolla is traded in. Because the car is said to be in very good condition the price obtained from appendix A is the highest price for trade in. This price does not include fees which are to be paid when buying or selling a vehicle. Examples of the fees are transfer and registration fees.

The car that Mr. Fanning wants to trade in the Toyota Corolla for is a 2008 Mazda 6, with automatic transmission. As Appendix B states, the car is a 2008 Mazda 6, Limited Sedan, four door Semi-Automatic 5 speed 2.5 litre which retails for $31 800. This price does not include fees which are to be paid when buying or selling a vehicle. Please refer to the table below.

Price: Difference
Toyota Corolla $7200
Mazda 6 $31800
$24600

There is an extra price of $24 600 needing to be paid if Bernard wants to trade in the Toyota corolla for the Mazda 6 assuming that the car dealer is being generous and is paying for the fees.
2.3 Payment method of Car

Getting a car loan is the best choice of payment for Mr. Fanning’s situation. There are many lenders who provide good deals for car loans but underneath are only listed two, who are both major banks in Australia.

The first lender is Commonwealth Bank. This bank is chosen because of its low personal loan interest rates. Commonwealth Bank offers a loan, which can be any amount borrowed for 1 – 5 years, which has an interest rate of 11.15% per annum. The loan repayment calculator shown in Appendix C can calculate the monthly repayment, total cost and total interest paid by entering the relevant data.

In this case we need a loan of $24600 at 11.15%p.a for five years. The interest in total for the five years is $7602.34 and the monthly repayment is $536.71 plus $10 every month because it is a loan service fee. The total amount needed to be paid off including interest and principal is equal to $32 802 but this value only includes loan service fees not the establishment and administrative fees.

The fees for this lender are located in appendix D. Some of the main fees that should be added are placed in the table below.

Fees: Amount: Total:

Administrative $50
Establishment $250
$300

All up the fees add up to $300 for five years so we have to add the $300 to the total to be repaid which is $32 802. This now makes the final value $33 102 and a monthly repayments schedule of $551.70 a month for five years. Yet there still could be fees like late fees which may increase the final fee value.

The other bank that a car loan could be borrowed from is Westpac. Westpac was chosen because it is Australia’s first bank and it had an excellent interest rate when compared with Commonwealth bank.

As appendix E shows, a personal loan of $24 600 at 10.49% for 5 years is actually increased to 26 825.90. The increase of $2 225.90 covers the fees such as personal protection, stamp duty but not the loan maintenance fee. The graph shown in appendix F, shows the total repayments, interest and total payment over the five years of the loan. The total loan being borrowed is $26 826 and the monthly repayment is $576.46 plus $7.50 every month for loan maintenance fee which equals to $583.96.

These repayments finish to a final value of $35037.60 over 5 years. The reason for which the monthly repayments are high is that the car is a depreciating asset which means that its value is decreasing over time. The faster Bernard gets the loan paid off, the better it is for you if you plan to sell it soon after paying the loan in full.
The bank that Mr. Fanning should choose is Westpac.

They may have an extra charge of $1935.60 compared to the commonwealth bank’s car loan, but the value for money is far better if you choose Westpac. In addition, Westpac offers buyers protection, which is defined as a program which pays the monthly repayments for the loan if you are dismissed from the workplace and have no income, are injured to an extent where you cannot work or accidentally pass away.

2.4 Selecting a Credit Card

The banks that Mr. Bernard Fanning has selected to get a credit card from has been narrowed down to the following choices which are; Commonwealth Bank, Suncorp Metway, Virgin Money, and American Express. The card lenders stated to show the fees, rates and other important features, on appendix G, H, I and J. All cards that were compared were set as equal, so that they were all standard credit cards which all have beginner features.

The virgin money credit card fits Bernard’s needs because the credit card offers many benefits like no annual fees and a low-interest rate which is 12.99% p.a. That is why I think Mr. Bernard fanning should get the virgin money credit card. Also, the graphs on appendix K, L and M, show the main factors which influence credit card choice.

Mr. Fanning should use the card as if it were cash so you shouldn’t become too fanatical. Then at the end of each month, the amount should be paid to be eligible for the 55 days interest-free period. The only extra amount you may have to pay for is balance transfer fees, which is when money is electronically transferred from one account to another.

I recommend that there should be a credit card limit on the card so that you don’t overspend. A limit such as $2500 will allow you too pay off all expenses each month not including mortgage and should still be able to spend a little more approximately $550 extra, just in case something pops up like household repair.

2.5 Employing leftover cash

Now that the car and credit card have been sorted out, it is time to see what happens to the money unused in your bank account. I think Mr. Fanning should open a bank account which gives a certain amount of interest in relation to the amount of money placed in the bank account. Even if it’s a small amount like $26 a month it will slowly build to a large amount. The account should always be open so that you can take out money if you need it for an emergency.

2.6 Future Income

Worrying about the future is a must, because if the choice of retiring is coming soon, the question, of “do I have enough money”, comes to mind. Investing in a great chance of making money for the future. There are many risks involved in investing. The main one is losing large amounts of money if the wrong decisions are made.

The small amount of money inherited can be used to do a number of things. One of them is to use it to invest in the future. Investing valuable money into a range of options like shares and real estate is better than only investing in one option. Investing in other options is lowering the risk of losing large amounts of money.

This is verified by the following example. Say a house and shares are bought. A stock market crash occurs one year later just as the shares were gaining in value. The shares hit rock bottom value, but luckily there is always the real estate investment which is good funding for the future.

If you want to buy shares, $35 000 could be taken out of the inheritance money received and used to buy shares, but it is a good idea for you to buy them after doing about 6 months of research about the company. Some factors Mr. Fanning may want to research are the debt of the company, the amount of revenue the company is getting and the expenses of the company. Also, I recommend asking a financial advisor about your financial decisions.

2.7 Future value of trip

The overseas trip that Bernard would like to do, will at the moment cost $10 000. But since the trip is estimated to be in 10 years’ time the price may change due to inflation, which is defined as the rise in price for everything. One way to find out the future value of the trip is by using the future value formula attached in appendix N. According to appendix N, the trip in 10 years inflates from a price of $10 000 to a price of $14802.44.

It is a good idea to go on the trip in ten years’ time because in five years, the car loan should be repaid which will allow you to occupy more money towards the trip. By diving $15 000 which stands for the trip value by 60 which stands for the months you get $250. This means that you should occupy $250 a month to be able to save $15 000 in five years. The monthly savings of $610 should have $250 subtracted from it. The remaining amount should be placed into the interest-paying bank account.

2.8 North Beenleigh house

An average, three-bedroom, one toilet and double lock up garage, home in North Beenleigh usually sells for $330 000 or rents out for $300 a week. If Bernard does choose to move to Shailer Park in around five years time, there are two choices which you may consider. The first one is to sell the house. If you think about selling your house in north Beenleigh you may only get an average of $300 000 to $330 000.

This may be great for a small period of 10 – 20 years but if you are thinking about the long run, it only equals to about $1312 a month for 20 years and after the twenty years there will be no more income received. Also if you plan to sell the north Beenleigh house and have lived in the house for less those 12 months you will have to pay a tax called “capital gains tax”. Capital gains tax (GDT) is defined as the tax incurred when selling an asset such as a house. An example is as follows.

If a house was bought for 200 000 and is sold for $315 000 the capital gain is worked out by subtracting selling price from the bought price. In this example, it is 315 000 – 200 000 which equals 115 000. By looking at the information of appendix O, the seller has to pay $17 100, plus 45 cents for every dollar over $75 000. So $115 000 – $75 000 = $40 000. Since the seller is $40 000 over $75 000, we do; 0.45 *40 000 which equals to $18 000. The amount the seller has to pay is 18 000 + 17 100 which comes to a total value of $35 100. This is subtracted from $115 000 which comes to a total amount left of $79 900. This is not much money earned by the seller.

Since it is not stated how long Mr. Bernard Fanning has lived in the north Beenleigh house, capital gains tax cannot be added. On the other hand, if the decision of selling the house is a yes, then you will have to pay agents fees, which is shown on appendix Q. Using the same scenario as the above example the following example will show how much the maximum agent’s fees will cost.

The maximum commission that can be subtracted by a real estate is 5% of the first $18,000 which is $900 and 2.5% of the remaining amount which is, $315 000 – $18 000 which equals to $297 000. Then the $297 000 is multiplied by 2.5% which equals to $7425. So now the $900 is added to the $7425 which gives an agent’s fee of $8325. Also according to appendix P, the seller has to pay 10% more of the agent’s fees as GST.

This is calculated by $8325 *10% which equals to $832.50. Thus the $832.50 is added to the $8325 which comes to a total agent’s fee of $9157.50. The seller only gets back $315 000 – $9157.50 – 200 000 which comes to a total of $105 842.50 profit.

The second choice is to lease out the house. If you lease out the house you do not have to pay capital gains tax but there are other expenses that need to be paid like still having to pay the rates of the house and the agent’s fees for advertising your home and finding a client for you.

Renting is a good way to save a lot of money in the long run. For example, a house was put on rent for $300 a week. $300 a week is averaged out to be $900 a month. This is good for the seller because if they have a spare $900 coming into their bank account. I recommend that you should put the house on rent instead of selling it because of the above paragraphs concerning the subheading 2.8.

2.9 Financing Shailer Park home

A house has been found in the shalier park that will fit Mr. Fanning’s needs. The approximate price of the house is $415,000, which includes four bedrooms, two living areas, a double lock-up garage and lots more features. A picture and a description of the house are in appendix Q. Bernard could use all of the inheritance money left over, which is approximately $265 000 to fund the house. The remaining $150 000 has to be paid by taking out a loan.

It has stated that you would like to buy the house in five years’ time which is a good idea because the car loan finishes in five years. This means that after five years you will be able to contribute $360 a month for the loan repayment. Thus the $360 combined with the rent income from the north Beenleigh home which is $900 comes to a total of $1250. $1250 is the monthly repayment that Bernard can afford to pay of the Shailer Park home. The lender Mr. Fanning should use is commonwealth bank because they have one of the lowest interest rates for the amount being borrowed.

There is a range of home loans provided by commonwealth bank but the chosen home loan which would fit Mr. Fanning is the economizer loan, which is attached in Appendix R. This loan is great for Bernard because it offers no establishment fee and no loan service fee. This saves Mr. Fanning over $2500 across the life span of the loan.

According to Appendix S, Bernard will have to pay for the first 3 years of the loan a monthly repayment of $1187 at an interest rate of 8.29% p.a. After the first three years the loan changes to the Economiser Base Variable where you will have to pay $1203 a month with an interest rate of 8.46% p.a. If you pay of the loan in full within the first four years, you will have to pay some fees including the establishment fees.

3.0 Conclusion

The goals combined with the funding Bernard has can create a great base for his future. If Bernard sticks to a plan like the one stated in the report or something similar his life can be low of debt, which will allow him to succeed in life.

4.0 Recommendations

All the recommendations stated in the subheadings 2.0 to 2.9 are as follows:

2.1 I suggest that Bernard should occupy less money on entertainment because $600 is a large amount.

2.2 I recommend that Mr. Fanning should trade in the Toyota corolla for the Mazda 6.

2.3 The bank that Mr. Fanning should choose is Westpac. They may have an extra charge $1 935.60 compared to the commonwealth bank’s car loan, but the value for money is far better if you choose Westpac.

2.4 The credit card Virgin Money is the best credit card which fits the needs of Mr. Fanning. Also a credit limit should be placed so that too much money is not spent.

2.5 Opening a bank account which pays high interest in relation to the amount of money which is in the account. Keep the account open so that if there is an emergency you can always take the money back out.

2.6 Using $35 000 to invest in shares is a great idea but get advice on what company you should buy shares from. Also invest in many options like shares and real estate.

2.7 The trip that you are saving for is estimated to be $15 000 on average in 10 years time, which means that if you put $250 a month in a bank account for 5 years you can save up enough money to pay for the trip.

2.8 The North Beenleigh house should be put on rent so that you can sell the house when the house prices are peeking, and also putting the house on rent allows you to afford your shailer park home. In addition, the Beenleigh house is a good retirement source.

2.9 Since the inheritance money will pay $265 000 of the property, a loan should be taken out for $ 150 000 to pay the rest amount. The house may not sell for $415 000 it may only sell for $405 000 but the extra $10 000 covers stamp duty and other fees.

5.0 References:

1. http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htm&pc=001/002/046/002/002&mnu=1045&mfp=001/002&st=&cy=1

2. http://www.ato.gov.au/individuals/content.asp?doc=/content/20427.htm

3. http://www.commbank.com.au/personal/credit-cards/

4. http://www.commbank.com.au/personal/personal-loans/fixed-rate-secured/features

5. http://www.commbank.com.au/personal/home-loans/economiser/

6. http://www.creditcardfinder.com.au/qantas-american-express-card.html

7. http://www.google.com

8. http://www.hlcalc.webcentral.com.au/results.asp

9. http://www.homehound.com.au/rent/houses/shailer+park/

10. http://www.moneybuddy.com.au/credit-cards

11. http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=104628572&f=0&p=10&t=res&ty=&fmt=&header=&cc=&c=45035137&s=qld&tm=1205151575

12. http://www.redbook.com.au

13. http://www.reiq.com.au/buySellRent/sellCosts.asp

14. http://www.smh.com.au/business/money/tools/calculators/property/loan_repayments.html

15. http://www.suncorp.com.au/suncorp/personal/credit_cards/compare.aspx

16. http://virginmoney.com.au/money/

17. http://www.westpac.com.au/internet/publish.nsf/Content/PB+Calculators

18. http://www.westpac.com.au/forms/personal_loan_calc.nsf/f_personalLoanCalculator?OpenForm&ParentUNID=F97FB8F7CABEEC56CA2574060025F429

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