Most people don’t think that having extra income or additional savings is a problem, after all, you’ve been working hard, and it’s time for a reward. The challenge is around making a solid decision to use that extra money in the right way. So you have long-term benefits that will provide big rewards when you need them most.


It’s important to think about your money as an asset, not disposable spending. When you have some extra money, you need to make some careful decisions about what to do with it. This goes double if you have debt from a personal loan or some line of credit. Do you pay it down, or build up an investment portfolio?


Both are ways you can make use of additional funds, however, there are pros and cons of focusing on one over the other that you need to be aware of. 


No matter which path you choose, investing, saving or paying down debt, it’s good to know that you are taking control of your money and are on a path to financial empowerment. It’s important to set up the mindset that financial empowerment is not about having a lot of money, it’s about handling the money you have wisely.


Ultimately, how you approach your financial goals will come down to your personal preferences, long-term financial goals as well as your current financial situation. This blog will help by explaining your options and the different goals they can lead to.




Should I Use Savings To Pay Off My Debt?


When you have some extra money come in, you can choose to pay off some of the debt you may have.


Paying off all your debt sounds like a dream come true, but tread carefully; it’s not always in your best interest to prioritise debt repayment over investments or savings.


There are a wide variety of factors you need to take into account including: 


  • Interest rates offered
  • Investment returns
  • Your age
  • Your incoming finances
  • Bigger financial goals
  • The size of your debt 
  • The loan conditions – will paying down early incur extra fees? 


If you can find investment returns that are significantly higher than the interest on debt, it might make more sense to increase your investment before making additional loan repayments or even taking out a loan to make a solid long-term investment if the loan rates are low.


The same goes for younger investors, putting money into a low-risk long-term investment early gives the asset more time to mature for retirement, such as gold assets or superannuation.


Psychologically it’s empowering to pay off small debts first, like a credit card, personal loan or car loan. This helps you gain confidence around debt management and gets you into the positive practice of covering your financial responsibilities. These debts also typically come with higher interest and fees, so it gives you back more wealth to get them out of the way.


Don’t be tempted to blow all your money on debt repayment though, make a suitable long-term plan to manage your debt in a logical way, especially for low-interest loans like a mortgage or student debt.


Spending too much on debt repayments can mean there’s not enough room in your budget for things like an emergency fund. If you run into any unexpected trouble or need to make a big payment, like car repairs or medical expenses, you might have to go back into debt to cover your needs.


On the other hand, not allocating enough money to resolve your debt means you could be prolonging your interest or allowing other debts (i.e. afterpay) to accumulate to the point where they get out of hand. 


Finding the balance between the two, where you regularly repay your debt and remain conscious of your interest and loan fees while having enough money aside for savings and daily expenses is important. While being debt-free is a nice place to be and a great long-term financial goal, make sure you also stay on track towards your greater financial objectives.



​​Should I Use My Savings To Invest?


Investing early in life gives you more flexibility and control for your long-term retirement success. The choice of whether to pay a debt, save or invest will come down to your personal circumstances.


Investing needs to be done consistently, even in the face of debts to be paid. Just be mindful of your debt responsibilities, if you overcommit to investing and only make the minimum debt payments, you may wind up paying excessive interest over time. 


There are a wide variety of investments available to everyday users:


  • Cash and bonds 
  • Mutual funds – for example Exchange-Traded Funds (ETFs) and stocks 
  • Commodities –  such as gold which can be bought and sold as flexible liquid assets through digital investment platforms
  • Superannuation
  • Real estate


Typically it pays to invest aggressively only once your high-interest debts are taken care of – like your credit card. The expense of these loans won’t be eclipsed by any wealth you gain from your assets.


You do need to look at solutions to get your credit and spending under control rather than having this as a rotating expense. Failing to make any kind of investment for the future can leave you short of your retirement goals, which may result in struggling with the costs of increasing living while on a fixed pension income.


As well as adding to your investments on a consistent basis, it’s important to vary your investment range to create a diverse portfolio. Investing in only one type of asset can hurt your wealth if the value drops. No investment is considered risk-free so buying a range of assets that traditionally perform in opposite directions helps provide security no matter what shifts the market might take. 


Gold is a favoured addition to a portfolio as historically it performs well during times of inflation, when other stocks and shares may decrease in value.



What Happens If I Pay Off Some Debt and Invest?


Being able to split your money across both debt repayment and investments is beneficial but it will depend on the funds you have available. If splitting your money reduces the amount too much it will dilute the impact you’ll see on any of your goals.


Both investing and debt repayments need to be regular allocations from your income and spare funds. If your current funds are enough to adequately cover some debts and investments you can explore doing both to receive multiple benefits of financial control and freedom.


While in the past some investments like gold needed a big financial commitment to purchase, i.e you had to purchase a full gold bar, thanks to digital gold investment options you can invest in gold with a much smaller payment and have a starting platform for some solid returns.


Weighing your financial options is complex and requires careful consideration. It’s a matter of prioritising the cash available, according to what makes sense for your current situation without sacrificing your long-term financial goals.


No matter how you prioritise your finances, it’s important to build an investment portfolio and research your options to diversify with hedging assets – or “safe haven assets” like gold – to minimise your risk in changing markets. 


You’ve worked hard for your money and want to see high-value returns for long-term gains that will offer you easy security. Making a choice for how you use your money gives you financial control and empowers you for a future of wealth.


If you find yourself with a windfall from an inheritance, pay bonus or tax return it’s important to take the time to think about your financial options. There are big advantages to saving your money, paying off debts early and investing for your retirement.


Make sure you reduce or eliminate your high-interest debts as a high priority so you can see gains from your investment performance.


Keep in mind that investing needs to be a regular part of your financial planning, regardless of any debt you have.


If you are ready to safeguard your future and begin saving in gold, the Nauggets app makes it easy to start small with whatever you can afford to set aside.