David (Not his real name)
Age: 25.
Occupation: Account manager.
Income: Salary $NZ54,000 ($A44,177), rent $33,800 per year.
Assets: Two houses, $47,000 and $302,000.
Expenses: $2100 a month.
Savings: $500 a month.
Debts: Two mortgages totalling $336,000 and $32,000 student loan.
Goal: In two years to have no student loan; in five years, another $20,000 in net assets, and in 20 years, to have enough assets to become financially independent.

David is well advanced in his quest to becoming financially independent and living a healthy, relaxed lifestyle. At the age of 25, he already commands a good income and owns two properties.

Having recently moved to the coast of New Zealand, he goes to the beach every day and leads a healthy lifestyle.

Where he lives also has financial advantages. "I've found there are less things to spend money on out here," he says.

David says his indulgences are minimal and spontaneous.

Financially, he wonders if he is on track and how best he can spread his risk. David is keen to acquire more assets but is not sure how to do so.

In terms of his financial habits, David believes he is getting better but realises there is more work to be done.

"(I've) still got a long way to go from the poor advice parents and school gave out," he says.

Angus Robertson, financial planner with Ozplan and member of the Financial Planning Association, replies:

As a primary rule, it is better to spread your investment risk and not hold all your eggs in one basket.

Your investment assets consist of two rental properties valued at $349,000 on which there are mortgages of $336,000. You have not stated how much is owing on each property.

The smaller property returns $3000 a year (6.38 per cent a year), the larger one $30,800 a year (10.2 per cent a year).

You also have a student loan of $32,000 at an interest rate of 7.7 per cent a year. To pay this off within two years you need to repay about $17,900 for each of the next two years.

On your current savings capacity of $500 a month, this is not achievable. You would have to reduce the loan to about $11,000 immediately to be able to pay off this loan within two years.

You could achieve two goals with one strategy: sell the smaller property, thus reducing your portfolio's bias to one single investment sector, and use the net proceeds to reduce your student loan.

You may be in a position to clear the mortgage on the smaller property plus the student loan in this one move, allowing you to reduce debt and diversify your portfolio.

Your intention is to increase your net assets by $20,000 in five years. If I assume that you have a mortgage of $260,000 on the larger property, the interest rate is 6.5 per cent a year, and the original loan is over 25 years, your monthly repayments are $1756 or $21,000 a year.

You are paying $4293 off the principle of the loan and $16,774 in interest this year. Reducing the principle alone will increase your net assets by $24,500 over five years, even before growth on the value of the property is calculated.

Additionally, using an initial $1000 plus your savings capacity of $500 a month, you could invest in a share-based managed fund. At an annual growth rate of 6 per cent a year, this savings regime would result in an extra $21,000 in net assets in the three years after the student loan is paid out.

Due to your debt level, I would strongly recommend that you have life and income-protection insurance in place to protect your assets.

Also, you need to make sure that you have a valid will so that the transfer of these assets can be done according to your wishes after your death.

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