Simple trick to increase your superannuation balance by $584k

Younger people in particular are ignoring this huge money-making opportunity, and it’s costing them hundreds of thousands of dollars.

If you’re like most people, you might think superannuation is something pretty boring that only matters when you’re old. And if you’ve got aspirations of retiring early, it’s easy to think the right move is to all but ignore your super and instead focus on other ways to build your wealth. And you’re right …

Well, at least half right.

You absolutely should have most of your focus on investing in areas other than your super fund. But your super fund will grow to be one of your biggest investments, so it deserves some attention – a little bit goes a long way here.

If you’re 20, making extra super contributions of just $5 daily will mean an extra $584,391 in your super fund by age 60. And it gets even better, because you can get a tax deduction for contributing to your super, meaning it won’t even actually cost you five dollars to get five dollars into your super fund.

Over the years as I’ve been helping people with their investing, particularly for those in their 20s, 30s, and 40s, I’ve identified a mystery that’s always fascinated me.

Any sane human being that has $10,000, $50,000, or $100,000 (or more) in an investment account would pay serious attention to this money. You’d want to check in on your money regularly, you’d want to know how it was invested, how your investments were performing, and you’d want to know it was set up in the best way possible.

But when it comes to super, most people take the opposite approach. Superannuation statistics from Finder.com.au show 10 per cent of super fund members never check their super fund balance, with another third of super fund members checking their balance less than once every three months. To add to this, 58 per cent of Australians don’t actively choose their super fund, instead going with whatever default super option is offered by their employer.

In my opinion this is borderline crazy.

How to make the most of your superannuation money

I want to make something really clear here – superannuation is YOUR money.

You essentially have total control over how your super money is invested, where this money goes, and how it grows. And it doesn’t matter to anyone else (read your employer or super fund provider) how your super money performs and grows as much as it should matter to you.

Check in on your superannuation like you would any investment. Picture: Unsplash

Your super fund shouldn’t need a lot of your attention or time. But there are a few things you should do to make sure your super money is working hard for you.

Choose a good super fund

The superannuation fund market is highly competitive, and super funds are getting cheaper with each passing year. This creates an opportunity for you to get your super money working harder for you.

In my opinion, the main thing that should be driving your choice of super fund is your investments. If you first figure out what you want to invest your super money into, i.e. whether you want to use passive index funds, ethical investments, or actively managed investments, this will help you narrow down the number of super funds that might make sense for you.

From there, you want to look at the fees and make sure you’re getting the best deal for the investments you want to use.

Review your performance

As mentioned in the statistics above, so many Australians rarely check in on how their super fund is growing – and in my opinion, this is a major mistake.

Checking in on your super fund will help you understand how your chosen fund and investments are performing relative to the other super funds you could be using. Further, keeping track of how your super is growing will help you build your understanding of investments and investment markets, leading to more confidence and peace of mind.

Make extra contributions

You can make tax deductible super contributions of up to $27,500 each year, which means that super contributions can cut your tax bill and help you invest more at the same time. And it gets better, because once money is invested through superannuation, all earnings are taxed at a maximum rate of tax of 15 per cent, which compares to personal marginal tax rates of up to 47 per cent.

Put more into your super – it’s tax deductible. Picture: Unsplash

Further, when you make extra contributions to super you create a positive investing habit that you can then build on for the future. And as an extra bonus, I guarantee that when you start making any level of extra contributions to your super, you’ll start paying more attention to your super money and how it’s growing.

Super won’t be your first investing strategy

Even though we can see from the figures above that the tax benefits of superannuation are compelling, in my view, it’s probably not the best strategy to go ‘all-in’ on when you’re early on in your investing journey – for the primary reason that you can’t access your super money until age 60 under the current rules.

To me, this means that before you start heavily cranking your superannuation you should lay the groundwork for your investing and wealth-building outside of superannuation.

Because property is such a crucial step on the journey to financial security, in my opinion when you’re early on in your investing journey, you should have a strong focus on creating a clear path onto the property ladder. In my view, this will make a bigger difference to your long-term wealth position than the tax benefits offered by superannuation.

That being said, it doesn’t mean you should do nothing about your super until you get there. Making sure your super money is invested well is something every single person should do immediately, and starting a small regular contribution plan will get your super money growing faster and help you build good money habits at the same time.

The wrap

Your super fund will grow to be one of your largest investments over time, and small changes have a huge compounding effect over time. With the tax benefits available to super fund investing, super becomes a compelling strategy as you’re looking to build your wealth and get ahead.

But given you can’t access your super until retirement, early on in your investing journey super is likely to take the back seat to other strategies like buying property – but this doesn’t mean super should be ignored.

Take the time to get your super money invested in a quality fund with solid investments that will perform well for you. Check in on how your fund is tracking over time to make sure your money is working hard for you and that you’re still getting a good deal from your chosen fund. And think about making some small extra contributions to build good investing habits, save some tax dollars, and get your investments growing faster.

Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth, the host of the How to be Successful with Money podcast, and Author of the Amazon Best Selling Book ‘Get Unstuck’

Ben runs regular free online money education events to help you make better money choices and get ahead faster. You can check out all the details and book your place here.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.