A shortage of income is a problem for many people but there are others who receive more income than they need to meet their standard living costs. What is the best use for that extra income?

One option is to simply spend more, enjoy the present. Travel more, buy the things we want, have a good time. This appeals to some people.

Others prefer to apply the extra income in the best way possible to help them get ahead financially. They prefer to spend less now and put money aside today so they will have more tomorrow. There are several options.

One is to use the extra income to pay down debts faster. This strategy offers assured returns, the interest saved. It can also provide emotional benefits, such as becoming debt free, even though it may not provide the highest return.

It is best to pay down the highest interest rate loan first, which usually isn’t the home loan. If there are credit card debts, personal or car loans they will be more expensive and should be paid off first. When they are gone there will be far more surplus income to tackle the home loan.

Another option for surplus income is to salary sacrifice into superannuation. This will mean saving income tax and building up super faster. The super contributions are paid from pre-tax pay, cutting income tax. The tax on earnings is also low. However super balances are inaccessible until retirement.

A third option for surplus income is to start an investment savings plan. Open a managed fund account with $1,000 and attach a small automatic regular addition to it, from $100 per month. Choose a fund that invests in shares and property for growth.

These plans are always flexible and accessible. They generate some taxable income, but also have tax offsets such as franking credits and capital gains tax discount.

Surplus income can also be used to meet payments on an investment loan. Borrowings can be used to buy a property, managed funds or shares. This gives the opportunity to earn capital gains on borrowed money.

Young people with large, high interest debts, may be best to apply most of their spare income to debt reduction. However starting an investment savings plan will harness compound interest to produce remarkable returns for them long term.

Middle aged folk should keep working on the debt but also start a little salary sacrifice. Having some accessible investments outside super will still be important. If they are keen to build wealth, borrowing to invest may be best.

For older workers large salary sacrifice payments are often best, with fewer family demands now and retirement not so far away.