Extra cash should it go into super or paying off your mortgage

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WHETHER it’s a work bonus, a tax refund or maybe a win on the horses, if you want to make some extra cash last and grow there’s always the home loan or your super.

There are many different variables to consider when working out which is best, but in most cases your age will be critical to working out which option will leave you in better financial shape.

For younger generations, when comparing a 25 year-old to a 35-year old you get greater bang for your buck if you inject additional funds into super rather than your home loan, says Mortgage Choice spokeswoman Jessica Darnbrough.

Calculations for both examples were used on the premise the person takes out a $300,000 home loan at the age of 25 with interest at four per cent and also has a balanced super fund account that pays on average six per cent annually.

It found the 25-year-old would be $45,000 better of by tipping an additional $50 a week into their super rather than their home loan.

For the 35-year-old it found they would be $26,000 better off come retirement if they chose to inject an additional $50 a week into their super rather than their home loan.

But Darnbrough says the older a person gets, the more likely they are to benefit from paying off their mortgage before injecting money into their super.

AMP financial planner Andrew Heaven says it all depends on an individuals circumstances.

Be mindful of your tax benefits, think of where you are at in your life,’ he says.

The guiding principles around your mortgage is the debt removal and free cashflow and the guiding principle of super is make hay while the sun shines, make the most of the tax principles and put money away to fund long-term benefit.

If you leave saving for your retirement until the last minute its going to constrain you at the other end.

He also says the benefits of putting extra money into super is it will be invested for the long term so you will make gains from compounding interest.

For those in their 40s and 50s, Heaven says pre-planning in your 30s to smash down debt will give you extra cashflow if you have children that require education and cost more to look after as they grow up.

But he says once you hit the 50s and your children have hopefully finished their education the focus should be pouring more cash into your retirement savings.