So, you’ve finally got some breathing room in your budget and a bit of extra cash to play with. But with so many options vying for your attention, where should you put it? Should you smash down your home loan, dive into the share market, or boost your super? It’s the great Aussie money debate, and the answer, as always, is “it depends”.

Let’s break down the contenders:

1. Home Loan: The Debt Destroyer
   • Pros:
     • Reduces interest: Paying down your home loan faster means you’ll pay less interest over the life of the loan, potentially saving you thousands of dollars.
     • Builds equity: Increasing your home equity gives you more financial security and borrowing power for future needs.
     • Peace of mind: Owning your home outright provides a sense of stability and freedom.
   • Cons:
     • Opportunity cost: The money used to pay down your home loan could potentially earn higher returns if invested elsewhere.
     • Accessibility: Once you’ve paid extra into your home loan, it can be harder to access those funds if you need them.
2. Investing: The Growth Seeker
   • Pros:
     • Potential for higher returns: Investing in shares or other growth assets can offer higher returns than paying down a home loan or contributing to super, potentially building wealth faster.
     • Diversification: Investing across different asset classes can help spread risk and potentially increase returns.
     • Liquidity: Investments can generally be accessed more easily than funds locked away in super.
   • Cons:
     • Risk: Investment markets can be volatile, and there’s no guarantee of returns. You could even lose some of your initial investment.
     • Requires research and knowledge: Successful investing requires research, understanding market trends, and potentially seeking professional advice.
3. Superannuation: The Retirement Hero
   • Pros:
     • Tax benefits: Concessional contributions to super are taxed at a maximum of 15%, which is generally lower than your marginal tax rate.
     • Compounding growth: Your super investments have more time to grow, benefiting from the power of compound interest over the long term.
     • Government co-contributions: If you’re eligible, the government may make co-contributions to your super, further boosting your savings.
   • Cons:
     • Inaccessibility: Your super is generally locked away until you reach preservation age, making it difficult to access funds for other needs.
     • Contribution caps: There are limits on how much you can contribute to super each year.
       
       

So, where should your extra cash go?

The best option depends on your individual circumstances, financial goals, and risk tolerance. Here are some factors to consider:

• Age and time to retirement: If you’re younger and have a longer time horizon, investing in growth assets or super may be more beneficial. If you’re closer to retirement, paying down your home loan or increasing super contributions might be a priority.
• Risk tolerance: If you’re comfortable with market volatility, investing could be a good option. If you prefer a more conservative approach, paying down debt or contributing to super might be more suitable.
• Financial goals: Are you saving for a specific goal, such as a holiday or a new car? Or are you focused on long-term wealth building for retirement?
• Interest rates: The higher your home loan interest rate, the more appealing it becomes to pay it down quickly.
• Investment knowledge: Do you have the knowledge and confidence to invest directly, or would you prefer to seek professional advice or invest through your super fund?

The verdict?

There’s no single “right” answer. It’s often a combination of strategies that works best. You might choose to split your extra cash between paying down your home loan, investing, and boosting your super.

Seek professional advice

A financial advisor can help you weigh the pros and cons, assess your individual circumstances, and develop a personalised plan to achieve your financial goals.

This blog post is intended for general information purposes only and does not constitute financial advice. It is essential to seek personalised advice from a qualified financial advisor to ensure the information is appropriate to your individual circumstances.