THE THREE PILLARS OF SUCCESS

When the cost of each runs into hundreds of thousands of dollars, you wouldn't want any more. They're about paying school fees and the mortgage, then for your retirement.

Oddly enough, they all come back to the mortgage you may, or will one day, have - even for school fees, though not quite the way you might have in mind.

Paying for a child's education, not overlooking the ancillaries such as uniforms, travel and textbooks, by itself would be about $65,000 for a child born this year going to a government school and up to as much as, gulp, $428,000 (incidentally about the size of a typical mortgage in Sydney or Melbourne) for private schooling starting from kindy, according to the Australian Scholarships Group.

The silver bullet

While most lenders would be only too happy for you to use the line of credit on your mortgage to pay the school fees, your gut instinct is right. Don't.

Financial advisers say the trick is to set aside any spare cash and stick it in the offset account of your mortgage. That way you're paying less interest on the loan for as long as the extra money is sitting there, and that's only the half of it. Unlike putting it in a savings account, the interest is tax free.

"Every spare cent you have should sit in there because of the tax benefits," Tony Harris, principal of Making Cents, says.

The hard part is taking the money out again to pay the school fees, since that will automatically increase the mortgage again.

"You need a very good disciplined mindset because you won't have a physical bank account," Louise Biti, head of technical services at Strategy Steps, says.

"You have to be prepared at some point to draw it back out."

Paying for your kids

But perhaps you had something more specific for the children in mind? There are always education or scholarship funds which, despite their name, don't require your kids to be bright, though they need to finish year 12 to get the full benefits.

These are offered by friendly societies as well as the Commonwealth Bank.

The trouble is that although the tax is lower and, in any case, is paid by the provider, they tend to have fairly low returns, which is to say rather high fees, and if you don't hang in there until your child's last year of school, you'll get your money back but no interest.

"The tax benefits don't take effect until after 10 years. And, really, you've got to start one from the child's birth," Jonathan Philpot, an adviser at HLB Mann Judd, says.

If you do go that route, put it in your own name, not your child's. Education funds are often a hit with grandparents who want to help out. Again, it should go in your name, not your child's and especially not theirs because it could jeopardise their Centrelink entitlements.

Alternatively, if you want to save through term deposits, or the better longer-term option of shares that pay fully-franked dividends such as the banks (and so come with a bonus 30 per cent tax credit) or investing in an ordinary managed fund, remember it should go in your own name.

Needless to say, though easier said than done, save the way they vote in Russia - early and often. Sorry, but that'll mean budgeting.

The most likely savings you can make are on the mobile phone, credit card, using public transport instead of driving and taking a packed lunch to work.

Home is where the savings are

Best of all, squeeze your mortgage.

If the rate you're paying starts with a seven instead of a six, demand better from your lender or walk. The banks routinely lop 0.5 per cent off the advertised rate, though you do tend to have to ask.

Even better, online lender Ratebusters charges 6.49 per cent (and drops 0.1 percentage points after five years), which includes an offset account.

Fix for three years and the rate is just a smidgin above 6 per cent, though you won't get the offset facility. Mind you, financial advisers are sceptical about fixing anyway.

"I always prefer half fixed and half variable," Biti says. "It's not so much a question of saving money as the certainty and predictability. I know I can afford the repayments."

For the variable half there are a few tricks that can lop years off the loan. One is to keep the same repayments even when rates drop.

Another is splitting the monthly payment into two fortnights. That works out at 13 payments instead of 12 (trust me, it's mathematical) a year. This is different from asking the bank for a fortnightly schedule, in which case the repayments are reduced accordingly making it the same as paying monthly and so defeating the purpose.

Or make the mortgage interest-only when pressure on the budget is greatest.

"When cash flow is important, such as paying school fees, go interest-only," Harris says. "You won't be going backwards. And you can still have an offset account with an interest-only loan."

Still, whenever you get the chance, paying off the mortgage should always be the priority. Yes, even more than super.

Sure, super has its tax breaks but in a funny way paying off the mortgage has an even bigger one. It's a saving at a guaranteed interest rate (that is, what the mortgage costs) which can't be taxed because, technically, it's a loan repayment.

Where else are you going to get 7 per cent after tax for no risk? Not in your average super fund, I'm afraid.

"But once it's paid off make sure you re-direct the payments you would have made to super," Biti says.

Retiring rich(ish)

Having, er, paid off the kids and the mortgage, the next money hit will be retiring. At least some cash was coming in before.

You'll need $1 million when you retire, based on a living allowance of $50,000 a year - a 5 per cent drawdown - Philpot says.

To get to that you need to start contributing to super, or saving in some other way (which will be harder because you wouldn't be getting as good tax breaks) when you turn 40.

Oops, a bit late? Never mind, there are some ways to catch up. One is salary sacrificing to super, which also has the advantage of cutting your tax.

Or you can make what are known as voluntary contributions, as if salary sacrificing isn't. There's no upfront tax break but they're a way into super that becomes tax free when you retire after 60.

Another way of fast tracking super if you're over 55 is salary sacrificing, then taking the minimum transition-to-retirement drawdown you're allowed, and putting it back in the next day. This otherwise pointless exercise makes the income in your super fund tax-free, while the drawdown comes with a 15 per cent tax credit, which will help pay for the salary sacrificing. After you're 60 the drawdown is tax-free anyway.

The upshot is you have the same amount in super but it's taxed even less. Even if you don't put it back, your super will be boosted by the fact earnings will no longer be taxed.

Finally you need to fine-tune the investments within your super. You don't need to run your own fund, which Philpot says is an option only if you have at least $300,000 that's going to grow.

Super funds have different investment options. In your 30s or 40s choose a shares-only fund. As you get older, switch to something more conservative that has bonds and fixed interest in it.

And check the life-insurance premiums your fund is charging. These can eat up a significant chunk of your contributions if you're not careful.

MANAGE THE MORTGAGE

Don't pay more than 7 per cent interest.

Maintain repayments when rates drop.

Fix half the loan.

Switch to interest only when cash is tight.

Pay fortnightly to cut the term.

SAVING FOR SCHOOL FEES

Subscribe to a scholarship fund.

Use a mortgage offset account.

Invest in fully-franked shares or a managed fund.

Switching to an interest-only mortgage preserves cash.

Don't put investments in the child's name.

A SUPER RETIREMENT

Salary sacrifice after 40.

Pay off the mortgage by 50.

Choose the growth option in super until 50.

Set up own fund if have at least $300,000.

Start transition-to-retirement pension at 55.