SAVE OR INVEST
A person with extra money to spare can do several things – spend, save or invest. If chosen wisely, the cash flow we have today can become the cash flow of tomorrow. And in order to increase cash flow, one has to make more money and control spending extra money. You can also say, “One will have to start saving more.” – But, still, it is not enough! It is because seeing the inflation rate; one cannot build a decent financial wealth just by “saving money”. Also, saving and investing are two entirely different things. Unfortunately, many people failed to understand the difference between both terms. However, saving and investing play different roles for different purposes.
In this guide, we will help you differentiate between saving and investing money.
How one is often is better than others in a particular situation?
When you should invest and when you should save?
Here’s a closer look at both – saving & investing.
WHAT IS THE MEANING OF SAVING MONEY?
Saving money is putting aside a small part of cash flow, gradually. The money we put aside is highly liquid (or cash) that can be used for short-term urgencies like saving for a holiday trip, covering monthly fees or any emergencies that might crop up anytime. Therefore, many people put aside a part of their cash-flow in saving bank account or someplace safe like under their mattress so that they can use it in emergency situations. In short, savings are ‘cash reserves’ that we save so we can easily reach out them and use without any delays.
WHEN SHOULD YOU SAVE?
If you’ve no savings at all, then we would recommend you to start saving first. In fact, it should be your utmost priority. Whether you are looking to boost your budget, save for festival, wedding, holiday, mortgage deposit, or looking to buy a new car – you should start saving your money. Unless you inherit a large amount of capital, it is your savings that will provide you with the capital needed to feed your investments and crisis situations. Otherwise, when you required cash in the future, you will find yourself in a bad position where you may be selling out your investments at the worst possible circumstances.
Generally, we do savings for the two most common reasons:
1. A 3-6 months’ worth of living expenses that cover personal expenses, food, house rent, loan, insurance, utility bills, and clothing expenses. That way, if somehow you lose your job or go out of business, you must have savings to adjust without worrying over expenditures.
2. For a specific reason in your life that will require you to have some cash at hands. By specific reason meant saving for the house at all. Because the stock market is very volatile so it would be better to keep the cash at hands rather than investing in the stock market for short-term. At least, this way, you will have one less thing worry about. On the other hand, the investing could be quite lucrative but if you needed money in a hurry then it might not be a wise idea to settle for less on your investments.
Note: – The only time you shouldn’t save if there are more important things to do such as opting a life or health insurance and paying off debts.
Read Also: Top 5 Methods of Increasing your Savings
WHAT IS THE MEANING OF INVESTING MONEY?
Investing money is the process of using some of your money or capital to buy an asset that you believe will increase in value with time and have a possibility of generating good returns in the future. Irrespective of volatility, investors invest in financial assets with the goal to achieve the inflation-adjusted returns in the future that can make them wealthier than before. In doing so, they invest in real-estate, stock market, mutual funds, and other investment avenues that can help them generate good returns over time.
WHEN SHOULD YOU INVEST?
Once you covered your emergency funds and health insurance plan for yourself then you start thinking about using your remaining capital to invest in some financial asset. The money you are keeping in your saving account will not consider a good investment because it will unlikely to beat the standard inflation rate. On the contrary, the money you will be putting in your bank account will crease in value over time.
So, it would be wise to make investments that can help you achieve your financial goals.
People who have short-term goals can go for saving into cash deposits, like bank accounts. Investing in stock market won’t be ideal if you have short-term goals, giving the high-volatility in the stock market. If you invest in the stock market for less than a year then you might make a loss.
If you are looking to buy a property in next 7-10 years or anything with medium-term goals then you would need to save your money as a secured deposit with minimal risk as possible. In such cases, you can go for equity mutual funds or debt funds where you can make good returns in 7-10 years with beatable inflation-rate returns. However, bear in mind, that there will still be some risks of fluctuation in stock prices or interest rates in debt funds so it would be wise to properly manage your investment portfolio.
For retirement plan, where you won’t be needed your money for 15-20 years, there will be a wide range of investment options available for you. In fact, you invest directly in cash segment of the stock market where you can do better than cash, debt, and mutual funds over the long-term providing the opportunity to make potential inflation-adjusted returns.
Plus, you can strategically build your wealth by strategically diversifying your portfolio.
FINAL THOUGHTS: –
There is no hush over start making investments. You can comfortably be staying in cash until the right opportunity surfaces for you. Not just any opportunity but the one that can help you in creating wealth as per your financial goals. Make your plan and let it execute swiftly.
Hope, this article helped you understand the ‘saving & investing’. Nevertheless, if you have any query or would like to mention something that missed then don’t forget to mention in comment section below.