After making loan repayments, should the money you've saved go straight towards paying down the principal?

Many people believe in buying their own home to live in as soon as possible, preferring not to keep renting and paying rent. Once they've bought it, they start saving, and when they've accumulated a certain amount in their account, they often want to pay off their home loan as quickly as possible.

But is this really the most sensible arrangement? If you simply pay off your own home, then by retirement the most you can do is sell the house and live off the proceeds — but you'd still have to rent somewhere yourself, or downsize to a smaller home and use the leftover money to fund your retirement. This is far from enough to give you a comfortable, dignified retirement, and it's hard to leave any real assets for your children.

If you want a comfortable retirement, it's generally best to own two or more investment properties in addition to your own home. First, you should set aside enough cash to ensure your family can meet loan repayments and living needs, then use your surplus savings to buy your first investment property. Your own home will usually have grown in value, and you can refinance to draw out some funds, so the capital required for the first investment property won't be too high. The rent can cover the loan repayments, and combined with negative gearing, you can essentially break even on cash flow — even if you need to top it up, the amount won't be large. This way, you're still only using your own income to pay off your home loan, and the investment property doesn't put financial pressure on you. After a few years, once you've built up some savings and the two properties have appreciated somewhat, you can refinance again to buy a second investment property. When choosing an investment property, look for areas with low vacancy rates, steady rental growth, and a history of stable capital growth — an overall above-average performer is ideal. If you buy your first home at 30 and add one investment property every five years, you'll own two investment properties by 40. From there, you have several options: Option one — keep adding one investment property every five years; Option two — start using your savings to enjoy life; Option three — accelerate paying off your own home. If you choose option three, you can pay off your home at around 50, then use your income savings to accelerate paying off the other two investment properties. By around 60, you'd own three fully paid-off properties, and the rent from the two investment properties would be more than enough to give you a very comfortable retirement, without ever needing your pension. On top of that, you'd leave three properties for your children. Isn't a plan like this much safer?