Correct Answer:
B. increase; repay existing
When your income exceeds the amount you wish to spend, you have a financial surplus. This situation presents an opportunity to strengthen your financial position. The most financially sound actions are to either grow your wealth or reduce your liabilities. Therefore, you should increase your investments to benefit from compounding returns over time, or repay existing loans to reduce interest expenses and improve your debt-to-income ratio. Both strategies contribute significantly to long-term financial health and security.
- Reduce your investments (A and D) would be counterproductive, as it means liquidating assets that are designed to grow your wealth, especially when you have extra cash.
- Obtain more loans (C and D) is an illogical and detrimental choice when you have a surplus. Taking on additional debt unnecessarily increases your financial obligations and interest payments, undermining the positive effect of having excess income. The goal is to reduce debt, not accumulate more.