The Government has delivered on its promise of tax cuts.

But for average families will an extra $20 a week really make much difference or will it simply disappear into the household grocery or petrol bills?

Consumption has an unerring ability to expand with capacity to pay so regrettably we may be sitting here in 12 months time analysing yet another budget and wondering where this week's tax cut went.

A little bit of elementary financial planning can make the difference here. Behavioral finance studies show that with some simple techniques we can turn saving into a virtually automatic process that happens in the background and does not put us in the position of having to choose between instant gratification versus our long-term good.
The tax cuts will take affect from July 1. And there are commitments for the next two years so you can take a three-year view of this saving plan.

For a family on $100,000 income the tax cut will be worth $21 a week, according to the budget papers. A couple of cappuccinos and a big breakfast at your local café will pretty much take care of that.

So let us consider the impact of the tax cut if it was put to work either paying off a mortgage or being invested in superannuation.

Now financial planning 101 says that debt that is non-tax deductible is bad and should be reduced as fast as possible. The interest on your mortgage is non-deductible so if all the tax cut was directed towards paying off the mortgage faster what would that deliver?

For someone with a $250,000 mortgage and paying 9.5% in interest adding the $21 a week to the monthly repayments would save you $66,800 over the life of a 25-year loan and mean you have it paid off three years sooner. It also delivers the benefit of building up a buffer should interest rates rise again.*

Alternatively if you have the mortgage paid off or at least well under control what would happen if you added $21 a week to your super contributions. Unlike the mortgage payments you can make super contributions out of either pre-tax or after tax dollars. Salary sacrificing pre-tax dollars is even more tax-effective.

The challenge with projecting super benefits is always what investment return you assume and how long they have until they retire.

We used a case study of someone who is 40 years old with existing super assets of $150,000, plans to retire at 65 and assumed a market return of 8% a year. The difference in the super benefit at age 65 is around $44,000 - $896,000 versus $852,000.*

One of the great advantages of the internet is there are many loan and superannuation calculators available that will let you plug in your personal situation and give you a real sense of the impact of your savings plans.

Be aware though that the longer the time period the more sensitive the projections are to quite small adjustments to assumptions like interest rates or investment returns.

The issue here is not whether paying off your mortgage is better than putting money into super. Rather it demonstrates the real value of planning to do something with a fairly modest tax cut in a disciplined, long-term way.

If you sign up now to deduct $20 a week extra from your salary - whether it goes into a mortgage account, super fund or a simple savings account - chances are you will not miss it but the pay back in a few years time will be worthwhile.