For many Australians, superannuation and home ownership are pillars of financial security. Both hold long-term value, but priorities can vary.

Super seeks to build long-term security for retirement. A home can offer stability and a sense of achievement. But which should come first?

The answer depends on your goals, lifestyle, and financial situation. There’s no right or wrong choice – just the one that fits you best.

This guide will explore both options, helping you understand the benefits and drawbacks. The decision is yours to make.

Adopt a long-term vision

Time plays a big role in growing wealth, whether through superannuation or property. Let’s look at how each works.

Compound interest is like planting a tree that grows larger every year. In superannuation, your contributions earn returns, which are reinvested to generate even more returns. For example, if you contribute $5,000 today and it earns 7% annually, that amount could grow to over $19,000 in 20 years, even if you don’t add more. But keep in mind that returns aren’t guaranteed and may vary based on market conditions.

Property appreciation works differently. A home’s value might increase steadily over time. For instance, a $500,000 home might rise in value to $700,000 in 10 years. However, these gains are often only realised when you sell or borrow against the property. Plus, there are ongoing costs like mortgage repayments, council rates, and maintenance. As with superannuation, market fluctuations influence property values – that means they aren’t guaranteed to rise.

Both strategies take time to deliver results. Compounding relies on reinvested earnings to grow wealth consistently, while property growth depends on market conditions and active management.

Voluntary super contributions versus saving for a home deposit

If you’re exploring whether to go down the voluntary contributions or home deposit route, here’s a quick comparison to help you consider your options:

Feature	Voluntary super contributions	Saving for a home deposit
How it works	Contributions are invested in assets like shares and bonds, generating returns that may compound over time	Savings are used as a deposit to secure a loan, allowing you to buy a property that may appreciate
Access to funds	Restricted until retirement age	Accessible at any time, depending on where the money is invested
Tax benefits	Potential tax advantages on contributions and earnings	No direct tax benefits
Growth potential	Possible compounding returns over time	Dependent on property value increases after purchase, and savings account interest rates before purchase
Risks	Market volatility affecting investment returns	Property market fluctuations after purchase. Before purchase, risks for savings accounts are usually low
Flexibility	Funds locked in until retirement	Funds can be redirected if priorities change
Upfront costs	None beyond contributions	Includes deposit, stamp duty, and fees
Long-term benefits	Aims to build retirement savings	Can provide housing stability and potential capital growth

When deciding between growing your super or saving for a home, it’s important to weigh the trade-offs carefully. We’ll look at each in more detail next.

Potential benefits and drawbacks of making voluntary contributions to super

Making voluntary super contributions offers unique advantages but also comes with limitations that may influence your decision.

Benefits:

• Tax advantages: Concessional contributions may reduce your taxable income, potentially offering significant savings if you’re eligible.
• Long-term growth: Super benefits from compounding, particularly for younger Australians with decades to retirement.
• Diversification: Super funds typically invest across various asset types, which can help manage risk within your portfolio.

Drawbacks:

• Limited access: Super funds are generally locked until retirement, which can limit flexibility if priorities change unexpectedly (except in some circumstances, one of which we will discuss shortly).
• Missed opportunities: As mentioned, directing funds to super may mean delaying entry into the property market, which could potentially impact future goals.

Potential benefits and drawbacks of saving for a home deposit

Saving for a home deposit offers immediate opportunities, but comes with challenges that can influence both short- and long-term goals.

Benefits:

• Entering the property market: A home deposit may allow you to purchase property and potentially benefit from long-term capital growth.
• Stability and lifestyle: Owning a home can provide a sense of security and personal freedom compared to renting.
• Flexibility of savings: Funds saved for a deposit remain accessible and can be redirected if circumstances or priorities change.

Drawbacks:

• High upfront costs: Purchasing a home involves expenses like stamp duty, legal fees, and ongoing maintenance, which can strain finances.
• Opportunity cost: As mentioned, savings for a deposit may not earn compounding returns like contributions to super.
• Rising housing costs: Market trends can make it challenging to save enough for a deposit, especially in high-demand areas. Similarly, changing market conditions may negatively impact the value of your home after purchase.

Finding a balance: contributing to super and saving for a home

After exploring the potential benefits and drawbacks, deciding between growing your super and saving for a home can be hard. But it doesn’t have to be one or the other. With the right strategies, you can make progress towards both goals. Here’s one way you can do that.

Using the First Home Super Saver (FHSS) Scheme

The First Home Super Saver Scheme offers a unique way to save for a home deposit while reaping the benefits of your super fund. The scheme allows you to make voluntary contributions to super, which can then be withdrawn later to fund a home deposit.

This approach gives you access to potential tax savings and the compounding growth within your super fund. It’s designed to help Australians enter the property market sooner while keeping their long-term financial goals in mind.

How the FHSS Scheme works

The FHSS Scheme lets you contribute up to $15,000 per year (and $50,000 in total) to your super fund, specifically for saving towards a home deposit. These contributions may potentially reduce your taxable income, which could help you save faster.

Once you’re ready to purchase your first home , you can apply to withdraw these contributions, plus any associated earnings. Importantly, the scheme ensures you’re still benefiting from your super fund’s growth until the funds are withdrawn. As highlighted above, depending on your eligibility, you can also benefit from a lower tax rate.

It can serve as a flexible strategy for those who want to combine tax efficiency with saving for a property.

FHSS Scheme in (hypothetical) action

Let’s consider Mia, a 28-year-old teacher who’s saving for her first home while thinking about her future retirement. She decides to use the FHSS Scheme, contributing an extra $10,000 per year from her pre-tax salary into her super fund over three years.

By doing this, Mia reduces her taxable income, saving on tax each year. During this time, her contributions also earn returns within her super fund. After three years, Mia withdraws her FHSS funds to put an additional $40,000 deposit towards her first home.

Not only has Mia saved for her home deposit efficiently, but she’s also started a habit of boosting her super early, which could potentially benefit her retirement down the track.

Flexibility and balance

The FHSS Scheme is one example of how you can work towards both goals. For some, it may make sense to split savings between super and a home deposit fund. For others, focusing on one priority at a time may be more suitable.

Your financial goals, income, and lifestyle will shape the right balance for you. The key is to explore your options and stay open to adjusting your strategy as your circumstances evolve.

Review your strategy regularly

Financial priorities and circumstances often change. What feels right today may not align with your goals in the future. Reassessing your financial strategy regularly can help you stay on track.

When to reassess

Life events can significantly impact your financial goals. Changes like a new job, marriage, starting a family, or unexpected expenses might require adjustments.

Economic shifts, such as interest rate changes or property market fluctuations, may also prompt a review of your priorities.

How to reassess

• Start by reviewing your progress towards your goals. Are you closer to buying a home? Is your super growing as planned?
• Evaluate your current budget. Are there areas where you could save more or redirect funds to achieve your priorities faster?
• Check if your financial goals have changed. For example, do you still want to buy a home in the same timeframe, or has this shifted?
• Consider external factors, like changes to the property market or superannuation rules, which may affect your strategy.

Balancing super contributions and saving for a home isn’t a one-time decision. It requires flexibility and regular evaluation. Check-ins with a professional can keep your strategy on track and adaptable over time.

The value of professional advice

Navigating decisions about superannuation and home ownership can be complex. A financial adviser can help you clarify your goals.

Professional advice is tailored to your unique circumstances, providing insights you may not have considered. It’s personalised and practical.

Advisers can assist in weighing options, understanding trade-offs, and creating a plan that aligns with your current and future priorities. They can also help you stay updated on changes in laws, tax benefits, or market conditions that might affect your strategy.

Seeking advice doesn’t mean giving up control – it’s about equipping yourself with the tools to make informed, confident decisions.

What’s right for you?

Again, there’s no universal answer for whether to prioritise superannuation or saving for a home deposit. What works for one person may not work for another.

Take time to reflect on your financial goals. Think about your lifestyle aspirations, long-term plans, and how much risk feels manageable. Both options have their potential benefits and trade-offs. And the best choice depends on your unique circumstances and priorities.

By understanding your needs and staying informed, you can be well on your way to making the choice that’s right for you.