When your business is your investment

Sue and Rob are a husband and wife who work in their own consultancy business. They have a $75,000 mortgage on their home and $40,000 of bank borrowings for their business. The bank secured their business debt with the mortgage over their home.

Sue and Rob know that they need a personal financial plan for themselves . Having their house subject to the fluctuations of their business makes them feel insecure. They know they can’t rely on the business forever, and they want to build up their personal net worth.

They decide to get their personal finances sorted. It’s important that what ever they do is tax efficient, and that it helps them get the security of a mortgage free house as soon as possible.

Sue and Rob talk to the bank and set a three-stage plan:

Step 1. They use all of their spare cash to repay their house mortgage. The bank agrees to make the business debt interest only, with no capital repayments to help them pay off the house mortgage as quickly as possible. Sue and Rob know that interest on the house mortgage is not tax deductible and so it’s better if they repay that first, leaving the business debt (which was deductible) until later.

Step 2. When the house mortgage is repaid, they will pay off the business debt.

Step 3. When the business debt is down to a comfortable level, they will start to invest in a super fund for their retirement.