There comes a time when we get our budget on track and arrive at the point where we need decide whether to save or invest our money. Although the two are similar, it is important to see the differences between saving and investing to choose the right path for you.
Saving is what we should all be doing, no matter the amount we are able to put in our savings account. Essentially, saving money is spending less than your income and putting the rest in the bank on a regular basis with no risk to the money you deposit.Saving money is the way to go if you wish to attain short-term goals within a timeframe of 5 years or less. Some examples include saving for a car, tangible items, a dream vacation or wedding. Before investing your money it is important to have a savings account that is designated and quickly accessible in the case of an emergency. Investing all your money is less ideal when first starting out a savings account, as it is generally more difficult to get to at any given time.
Investing is what we can do once we have a chunk of money saved. Investing is the way to go if you are hoping to grow your money and make interest. When putting savings in a savings account the amount of interest earned is very low. Investing in mutual funds or stocks is the quickest way to gain interest on your money.
Investing money is suitable if you plan to save on a long-term basis and are willing to take some risk with your money but also have the potential to come out with higher rewards.
When investing it is important to be aware of the risk/return payoff. If investing is done with the stock market, it is therefore higher risk. This means the higher the risk you take when investing your money, the higher the potential payoff will be. Ideally when you invest, you want to come out with the highest amount possible, however, this does not always happen. The risk you are taking is coming out with less money than you went in with.When investing in shares you must be ready to commit to at least five years as the stock market will fluctuate.
Your attitude towards risk is an important factor to consider when deciding whether to save or invest your money. You have to know how much you are willing to lose and when you need to get out. The amount of risk you are willing to take will depend on your personality, age and the amount of other savings you might have.When deciding between investing your money or saving, you must consider how much you can afford. If you are only able to save a small amount, you may want to choose the lower risk option: saving.
The choice between saving and investing really fits in with your own personal budget. If you do not have any savings then you are unable to invest any money. A base must be established before it can be built up. Have an emergency account and get a good amount in a savings account before deciding to invest. Saving as well as investing does not happen over night, it takes time, determination and control. It is important to stick to a budget and be limit unnecessary spending.