Reference no: EM131475391

Personal details, income and savings:

Name	Age	Gross annual salary
James Pretzel	34	$101,500
Jane Pretzel	33	$40,000
The Pretzel's have a 1 year old daughter.

Additional Information

• James and Jane have just returned to Australia after living abroad for the past 8 years. They have used up their savings and started using credit cards to fund their living expenses whilst looking for work upon their return. Luckily, James has just found work as an Education Consultant and Jane has just found part-time work as a florist.
• James and Jane would like to know how much money they will receive after paying tax.
• Jane and James have limited financial knowledge and are seeking your advice about their current financial state.
• The Pretzel's currently rent an apartment but aim to buy a house in the future. They have consulted you as they are looking to save $80,000 for a deposit for their house, 5 years from now. They want to know if they can achieve this goal.
• The Pretzel's keep a minimum $5,000 in a current account for sudden events. Any surplus savings will be invested into the James' Managed Fund at the end of each financial year.
• Assume that James' Managed Fund pays 4% return after tax at the end of the year. Also assume that return from this investment does NOT need to be included in his annual tax returns.
• Assume their income will remain constant in dollar terms and that the 2016/17 tax rate will stay constant for the next 5 years.
• Assume that all expense amounts have been adjusted for inflation and will stay constant in dollar terms for the next five years. A change which will occur is that the day care fees will be incurred for the next 3 years only. After which, their daughter will attend kindergarten at a cost of $ 1200 per annum. Also, the credit card debt will be paid off in 12 months.
• Assume that both James and Jane have 9.5% employer superannuation contributions paid in addition to their salary and they do not salary sacrifice into their superannuation.

Annual Budget Sheet -

	$
Rent (490 per week)	25,500
Electricity/Water/Gas	1,140
Telephone/Mobile	1,800
Pay television/Internet	1,100
Insurance - home/contents	1,200
Day care expenses (2 days a week at $60 each day)	6,240
Insurance - cars	3,075
Health Insurance (After income tax deduction)	3,235
Credit cards repayment ($500 a month for 12 months).	6,000
Car loans repayment ($8000 a year for 5 year term)	8,000
Petrol/maintenance	6,500
Car registration	720
Public transport	2,800
Other expenses
Food	13,500
Clothing/Haircuts/Beauty	4,500
Medical/Dental	2,500
Entertainment/Dinners	12,000
Prof. Memberships (James).	1,000
Gifts - Birthdays/Christmas	5,000
Total	105,810

Current Assets and Liabilities -

Assets (Ownership)	Current valuation	Liability (Ownership)	Current valuation
Home Contents (Joint)	$20,000	Credit cards (Joint) Includes the annual interest cost	$6,000
Cars	$55,000	Cars loan 5 year team at 12%	$30,000
Current accounts (Joint)	$5,000
Managed Fund - Vanguard Cash fund (James 4% return p.a.)	$15,000
Superannuation -James -Jane	$12,000 $10,000

A. Calculate Jane and James annual after-tax income. Explain one way in which Jane and James could reduce their tax liability and show the effect this strategy would have.

B. Calculate the solvency ratio, liquidity ratio and savings ratio using the Preztel's financial information. Explain in everyday terms what these ratios mean, highlight any concerns you have and suggest one improvement the Preztel's could make.

 C. Calculate the amount of combined savings the Preztel's can accumulate 5 years from now for the deposit on a house. Explain a strategy that the Preztel's could take to increase their savings.