To transform your dreams into reality and achieve the lifestyle that you wish for, you probably need a lot of money. To reach your financial goals, you can either save your earnings until you accumulate the amount you need or invest your funds to increase your money. There is a third way as well; you can go for a combination of both. Before we look at what is the better endeavor for you to take up, first, let us look at the difference between saving and investing.
Saving money is fundamental and crucial for financial security. It is basically the act of putting your earnings aside, bit by bit, in a safe place so that you can use it in the future or grow it steadily. Savings are usually put into cash products, such as credit unions, building society, or a savings account in a bank. Typically, saving money is an act that is taken up to pay for a specific thing. Covering potential emergencies, a deposit on a home, and a holiday are a few examples.
Investing can be a great way to achieve financial stability over time. However, unlike savings, investments have a risk element attached to them. Investing is the act of buying a product or products that have the prospective to grow in value over time. Purchasing shares in a fund, stocks, and property are a few examples of investments.
Who Should Save?
The simple answer is, everyone. We all should have at least three months of expenses up our sleeves for emergencies. This emergency fund should be in a savings account that offers you instant access. Calculate your basic monthly expenditure, including food, utilities, tuition fees, rent, and any other essentials, and multiply the total amount by three. The resulting amount is the least everyone should have as savings.
Now that you have enough money to fall back on if the need arises, you can save some more for any plans you might have in the upcoming future, like a vacation or a wedding. The only time one should not save money is when they have to minimize their debts as getting out of debt should always be prioritized.
Who Should Invest?
Anyone who is willing to embrace the possibility of losing their money and is ready to invest should invest. By being ready, we mean having undergone market research, attained relevant knowledge, and have compared their options. Factors like your personal circumstances, your age, the amount of money you have or wish to invest, and your goals also play a role in whether you should invest and what to invest in.
It is better to invest in stocks or property if you have long-term goals, as inflation can render your profits fruitless if you go for cash deposits.
Saving vs. Investing
There are many factors to consider before investing, but saving is for everyone. In order to invest money, you usually need to save some money first in order to accumulate the amount that an investment requires. Investments can give you huge monetary benefits in short and long periods of time, but they have their risk factors attached to them. Saving, on the other hand, is more stable, but your set aside funds will not increase much, if at all, over time.
Now that you know the difference between saving and investing, you can make an informed decision about which option works best for you and your money.