Both saving and investing money are important, but certainly, there are differences between the two.
Probably, the biggest difference between saving and investment is the risk taken.
Saving ensures a lower return with little to no risk. On the other hand, investing will allow you to earn a higher return, but yes, the risk factors are high here.
Both saving and investing can secure your future, but you need to decide right.
You need to decide whether it is the right choice to save or invest depending on your financial goals. For some goals, saving is better, while for some, investment is the winner.
So, how to know if you should adopt the safer route to save your money or take a riskier path of making investments?
The following pointers will help you decide.
Question Yourself Do I Have Adequate Emergency Fund?
If you want to decide whether you should invest or save or money, you must ask yourself whether you have adequate funds to dispense in an emergency.
Now what do we mean by adequate?
How much is too much?
Well, this depends on how secure your income is. On an average, you can keep around three to six months expenses in cash in your savings account.
The high yielding savings accounts prove the best if you want to save money.
Your money will always be there for you. If you are investing an amount, your money may increase or decrease, depending on market conditions. However, the high yield savings accounts are not just for emergency, but can also be helpful to reach a particular financial milestone.
Save for the Short-Term Goals
If you have a short-term goal, for example, you plan to buy a house, planning a vacation or getting married the next year, you can save the money, rather than investing it.
Experts say, if you have a goal to meet in 5 years, save the amount.
If you don’t have a goal to meet in 5 to 10 years’ time, invest it.
Invest to Grow Your Wealth
If you are eager to make money in markets, the buy and hold strategy will help in the long term.
Invest only if you can leave your money in the market for some time.
The only thing you can predict if you are investing in stock market is, the market will go up and down.
You can never predict the future. Before investing money, think why are you investing.
Are you investing for retirement that is decades away or you plan to buy a home in 5 years?
If you are a young adult and have long term goals, buy multiple stocks.
For short term goals, go for lower risk investment like bonds.
Saving money will always come before investing money.
Reason is simple.
Your savings will provide the capital for investment.
If you face hard times, you have to sell off your investment, at worst possible time, which is a recipe for disaster.
So, think before you act.