It’s always nice to have some extra money. The question is, how should you ideally use it? The three main options are:

You can spend it

This is the most tempting option for many.

Although you may love to spend your spare cash on redecorating your home or going on holiday, try and curb your impulse. Impulse spending is often a fleeting pleasure and your money will be gone before you know it.

On the other hand, if you need to pay up your medical insurance or have a car servicing long overdue, these are useful ways of using the money. Avoid spending on frivolous, luxury purchases or buying something to impress your friends.

If you come into spare cash, the first and best thing to do with it is to pay off any pending debts. If you have taken a loan in the past and are in the process of repaying it, use your spare cash to plug the loan. It’s also a good idea to repay your credit card debt if you have any as credit card interest rates tend to be very high. Remember, you could be paying as much as 18% interest (or more!) on your credit card bill.

It’s a good idea to wipe the debt slate clean and this is a sound way to begin your journey towards financial independence.

You can invest it

Investment options in the UK include CDs (Certificates of Deposit), fixed deposits, ETFs (Exchange Traded Funds) or Investment Funds among others. Each form of investment comes with its own set of benefits and risk factors. As a general rule of thumb, the higher the returns the higher the risk factor. Stocks for example come under risky investments as the values of stocks fluctuate with market forces.

Other investment options include money markets, annuities and real estate.

You can save it

Some people prefer saving their extra money for a rainy day or until they find a good investment. For example, you may wish to save your extra money until you are able to pay a down payment for a mortgage. The only thing is that you should be careful not to spend the money until you invest it for growth.

What do you do with your extra cash? Do you save it, spend it or invest it, or maybe a mixture of all three? Share your tips in the comments below.