If you come up with a question like which one is more important between saving money or investing? Then, the answer is both saving and investing money are important. However, you should know two different things better before determining to choose one or both.
When choosing between the two, you need to know that saving is a safer way to keep and grow the money. While investing tends to be riskier, although it may grant you a higher return than merely saving.
Let’s check out more on whether to save money or invest in helping you decide which one is the best for your financial plan.
The Difference between Save and Invest
When the question ‘save money or invest’ pop up in your mind, you should understand the difference between these two:
– Saving money
Saving money means an activity to set aside money bit by bit for a certain financial goal such as a home deposit, have a vacation, pay for education, establish an emergency fund, etc.
The idea of saving money is to make the savings handy to use whenever you need it without any possible delay. Thus, you mostly do the saving for a short-term financial goal.
Investing means spending a certain amount of the money you have on something with an increasing value as an effort to make money grow. The most common things to invest in are properties, stock market, bonds, or fund shares.
Investing could indeed offer you a higher return, but it comes with a risk that you might lose everything you invest.
Pros and Cons of Save Money or Invest
Here are some pros and cons of save money or invest in helping you get a clearer vision
|Save Money||Easy to do
Know from the beginning interest to receive on the balance
The bank guarantees our money
Have almost instant access to the balance in a time of need
Have minimal fees
The balance amount will not decrease
|Returns are low
Prone to inflation that causes us to lose purchasing power
|Invest||Offers higher returns
Be able to convert investing products into cash within no time
Be able to beat any potential inflation to help increase your purchasing power
|No guarantee for the returns
May not receive your initial investment fund (lose it)
Have no access to the money
Spend more money to pay an expert to help you manage your money
Have higher fees in brokerage accounts
When Is the Right Time to Save Money or Invest?
Answering the question about when is the best time to save money or invest can be tough. The decision made should be based on one’s current financial situation. Nevertheless, here are some red flags that will help you learn when is the right time to save money or invest.
The Right Time to Save Money
The following reasons could be the sign that will help you to decide to save money rather than to invest:
- When you plan for a short-term financial goal such as buying a house, plan a wedding, plan for a vacation, etc.
- When you want to have access to your money within no time
- When the money you have serves as your backup if something comes up
The Right Time to Invest
The following reason may indicate that you are ready to invest:
- When you are ready to take the risk over the money you are investing
- When you do not need the money within the next 5 years
- When you desperately want to grow your money beyond the mere saving
- When you are stable financially and has your emergency fund fully covered
In fact, you can actually do both to your best advantage. You can separate your money into savings and investments. You save the amount of money you need and make sure that you have instant access to them.
While doing so, you also invest a certain amount of money that is not needed to meet your short-term financial goal.
Now that you have learned more about balancing between saving money and making investments, it is time for you to do your math and make your best decision for your financial goals. If you still need your money within the upcoming 5 to 10 years, saving money is your best answer.
However, if you do not need the money within the next 10 years, investing will do you good.
So, which one between save money or invest that you will choose? Perhaps, you want to do both? Make your decision now.