When unexpected money comes your way—whether it’s a work bonus, an inheritance, or disciplined savings—the big question is: what’s the best way to put it to work?
What Are Your Options?
There are four main ways to allocate extra funds:
- Pay off debt – Reducing high-interest loans such as mortgages, credit cards, or personal loans.
- Build an emergency fund – Keeping cash accessible for unexpected expenses.
- Invest for growth – Allocating funds into stocks, ETFs, or even cryptocurrencies for long-term returns.
- Boost your pension – Maximising long-term savings for retirement benefits.
There is no universal answer—the best choice depends on your personal financial situation, goals, and time horizon. If you won’t need the money for 10 years, investing may be ideal. However, if you need access within three years, a high-interest savings account could be a better option.
How to Set Your Priorities?
Before deciding where to allocate funds, take a structured approach:
- List your financial goals and rank them by priority.
- Evaluate your progress toward each goal.
- Decide how best to use the extra funds to achieve financial stability and growth.
A Practical Example
If you’re 30 years old and planning to buy a house in three years, prioritising your deposit savings is key. Investing in stocks or a pension might not be suitable since those funds could be locked in for the long term. Instead, placing money in a high-interest savings account could secure a competitive rate before potential interest rate changes.
Debt vs Savings: Making Smart Decisions
Many people unknowingly hold onto cash while carrying expensive debt. For example, if you have €10,000 in a bank account earning 0% interest while carrying a €10,000 loan at 6-7% interest, you are effectively losing money. In most cases, it makes sense to pay off high-interest debt first before accumulating savings.
Similarly, while an emergency fund is essential, major financial emergencies (such as medical bills or car repairs) are often covered by insurance or credit options. Keeping a large idle cash reserve may not always be the most efficient financial move.
Balancing Emotion and Logic
While financial planning should be strategic, emotions also play a role. For instance, if your mortgage is at a fixed 2% rate but you can earn 3% in a savings account, logic suggests saving rather than overpaying your mortgage. However, some people prefer the peace of mind of reducing debt, even if it’s not the most financially optimal decision.
The Bottom Line
Your extra money should be allocated in a way that aligns with your personal financial goals and preferences. Since everyone’s financial situation is different, what works for one person may not be the best strategy for another.
Seeking professional financial advice ensures that your choices support your short, medium, and long-term objectives. An impartial financial advisor can help you make informed decisions that maximise your money’s potential.
Ready to take the first step? Talk to us to learn more about how we can help you achieve your financial goals for 2025 and beyond!