Before you decide whether SHOULD YOU SAVE OR INVEST, here are some differences between saving and investing money.
Wondering whether you SHOULD YOU SAVE OR INVEST? It’s obviously a good question, but unfortunately, they are not the same. Many people don’t understand the differences between saving money and investing money. But both of them come with many benefits and can play a crucial role in helping you to reach your financial goals.
Difference between saving and investing
First, you have to know all the differences between both of them to decide whether SHOULD YOU SAVE OR INVEST. When you are saving your money, you are keeping your cash in the bank accounts or in a short term deposit. It sounds very easy but not many of us do it. When you are keeping your money in a savings account, it will only grow because of interest. Interest can be daily/ monthly/ quarterly or some other time, which means you will get interested in the interest you have made on your main initial deposit.
This sounds like a good idea until you know that all the banks are currently offering a very low interest rated. So the problem is, when you are saving your money, it is very hard to grow. On the other hand, when you are investing your money, you are most likely buying an asset that has the potential to increase in value over time. The most popular investments are shares in companies, bonds, funds, and real estate.
Nowadays investing money is a lot easier than some years ago. This is only because of the new wave of companies who are using technology to make it more easily accessible. As a result not only you can get access to the global market but investing fees are also lower than ever. And the best things are- there is no middle-man involved in the process and you don’t need to have a large amount to start investing. So now you can decide whether SHOULD YOU SAVE OR INVEST.
Well. If you research on the internet, you will notice most financial experts say that saving money always comes before investing money. And from that, you can decide if YOU SHOULD SAVE OR INVEST. Because saving money is very important to create healthy money habits before you start investing. After saving some money, when you have a foundation to breathe a little easier, you are ready to invest. But always Keep your savings saved for any kind of emergencies and start investing 10-15% of your annual income.
Time plays a very crucial role in this matter. It can be one of the most important factors when you are confusedaboutwhether YOU SHOULD SAVE OR INVEST.
When you should start saving?
• If you have no savings at all
If you have no savings at all, you should start building a fund today for an emergency.
• If you are planning a big purchase in the next 0-10 years
If you are planning to purchase something big like a home, new car, etc in the near future, savings can help to make it happen. If you need your money after a short period of time, it is better to keep it in a savings account. That way there will be no risk of losing your money. Always remember, share markets may go up in value, but the path to making wealth can be a little rocky sometimes.
When you should start investing?
If you have already got an emergency savings fund, then it is the perfect time to start investing.
But wait! Ask yourself three simple questions first that will help you to determine when you are ready to invest.
1. Do you have an emergency savings fund?
When you are choosing between saving or investing, you first need to look at what cash you have to fall back on if needed. As we mentioned earlier, according to experts, it is very important to have an emergency fund before you start investing.
2. Are you committed to leaving your money for a longer period of time?
Investing your money means leaving your money in a place for at least 2-5 years. Not many people are committed to that.
3. Are you okay with the ups and downs of the market?
Longer-term investments can give you a huge amount of wealth, but you have to take more risks for that.
If your answer is no to any of the questions, then it is best for you to focus on savings. Ultimately savings is the first step of investing cash. Because without it, you are not ready to take any risk of putting your money in the market. Now it will be easy for you to decide SHOULD YOU SAVE OR INVEST.