Many people are undecided about whether they should save or invest their money. It is entirely dependent on your objectives and present financial circumstances. While it is true that investing can help you expand your money, there are several things to consider before considering whether investing is good for you.
Take a look at the following fast guide to see if short-term savings or long-term investing is the best option for you.
What Is the Difference Between Saving and Investing?
Saving is basically putting money aside as little as possible and as frequently as you can. You’re normally putting money aside for a specific purpose, such as a family vacation, a home deposit, a car, or a rainy day fund in case of an emergency. You normally use tools like a bank or building society’s savings account. Investing, on the other hand, is the process of utilising some of your income to try to increase its value. You purchase items that are likely to appreciate in value so that you can see a return on your investment, such as stocks, real estate, or other investments.
A Contingency Fund
Everyone should think about having an emergency fund account. Try to set aside at least three months’ worth of living costs in an account with rapid access. Food, rent, mortgages, school tuition, and any other basic outgoings should all be included. You are providing yourself with financial security in the event that something goes wrong.
Maintain Your Savings
After you’ve met your emergency fund target, you should maintain savings and grow your funds. On a monthly basis, you should aim to save roughly 10 per cent of your income. If you are unable to save this amount, save everything you can, even if it is a small sum. It’s a good idea to create a goal for yourself and then work toward accumulating enough finances to achieve it. However, resist the urge to dip into your emergency savings.
This is the time to think about investing your savings instead of saving for a wedding, a house, or a car. Instead of saving for a wedding, a house, or a car, you invest your money in the hopes of making a profit.
When Saving Isn’t Necessary
Simply said, unless your money is critically needed elsewhere, you should always aim to save. If there is a pressing need for your money, you should not be saved. Getting your debt under control is an example of this. Before you try to save, you should take care of things first. You may still be able to save an emergency fund if you have repayment plans in place.
Is Now the Best Time to Invest?
The appropriate response is entirely dependent on your personal objectives.
Short-term Objectives – This is your five-year strategy. Normally, you’d utilise a savings account at a bank.
Medium-term objectives – a five- to ten-year strategy. Bank deposits may be the greatest option, but if you want to take a risk with your money, investing may provide a superior return. If you’re saving for a big purchase like a house, the risk might not be worth it.
Longer-term objectives – These are the types of investments that you would make and then withdraw when you retire or after ten years. If you’re trying to invest, you don’t want to take the money out until at least ten years, if not more.
When it comes to investing, it’s vital to be sure you understand what you’re doing and perhaps seek advice from a professional. Hussain al Nowais has experience in investing so it could be a good idea to read about him. Always keep in mind that investment is never a sure thing.
Do you have any other tips on saving vs. investing? Please add them to the discussion in the space below.