We earn $350k a year but struggle to save. What can we do about this?

What should we be doing now to strengthen our financial position? It feels as if we are hamsters on a wheel at present, albeit very fortunate ones.

We are in our late 40s with three kids and live in Sydney. Our home is worth $3 million with a $1 million mortgage, and our combined income is $350,000 (excluding super). We have $600,000 in super and keep about $30,000 in savings as a buffer, with monthly mortgage payments of $6000. Despite having a detailed budget, we often overspend, using up the amount that is theoretically savings. We have borrowed to fund an investment portfolio in the past, however it had to be liquidated when my husband was made redundant and took some time to find something new.

If you’re struggling to keep track of all your spending, it might just be that you’re in an expensive part of your life.

Your balance sheet is strong courtesy of the equity in your home. While it would be possible you use this equity to fund another investment, my concern would be around your stated tight cash flow.

Any investment you undertake is likely to produce some income, but typically that income wouldn’t be enough to cover the full loan repayments. You don’t want a repeat of your investment property experience.

You are currently in the most expensive phase of your life. It may be that simply continuing to pay the mortgage and raise your family is enough at this point. Once the kids have finished school, chances are your expenses will come down, and at that point you could explore wealth creation opportunities.

Should I keep paying my home loan to clear it completely, or go back to standard payments, and start putting money towards my investment property loan instead? Is there any negative in paying off the home we live in?

I am currently paying off my mortgage at the speed of light. The balance is now $100,000. I have been paying about $6000 a month for several years. I also have an investment property with a mortgage of $750,000, which is currently cash flow positive. I have $400,000 in offset against this.

My wife and I are high-income earners with two children at school. I am 44 and my wife is 42 and our children are aged 11 and eight. We’re planning to work for another 10 years until our kids finish school.

I can see no drawback to you clearing your home mortgage entirely. Should you want to do wealth creation investments in the future, you could always get a new tax-deductible investment loan secured against your home.

It would make sense to continue focusing on the home loan in preference to the investment loan. If you reduce what’s owing on the investment property loan, your positive cash flow position on this asset will improve, which will result in you paying more tax.

Don’t get me wrong, positive cash flow on an investment is what you want long term. But given that there’s a trade-off here, home loan or investment loan, it would seem that focusing on the non-deductible home loan was the smart move here.

Once this debt is cleared, it would be worth sitting down with your financial planner and running some projections to understand your long-term outlook. The monthly payments you are now directing to the mortgage would not necessarily be best reallocated to then paying down the investment property loan.

It may be that other investments or additional super contributions produce a better long-term result. It’s certainly worth crunching the numbers.

Paul Benson is a certified financial planner at Guidance Financial Services. He hosts the Financial Autonomy podcast. Questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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