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What do you do with the extra cash you have lying around? Well, you could spend it, but you could also save it or even invest it in order to make it grow. If things were this simple, however, no one would ever opt for saving – who wouldn’t prefer getting rich quickly and with little effort, after all? The answer to the question of whether you should save or invest your money depends heavily on your financial situation and future financial goals.
In This Post:
Saving vs. Investing
Naturally, saving and investing are entirely different things, but not everyone knows what exactly each of them entails.
Quite blatantly, saving means putting money aside little by little and making it slowly grow. Then, as the savings grow, the individual will occasionally take portions of them for certain things, such as a car, a holiday, a deposit on a home, emergencies, etc. As a rule of thumb, saving entails putting money into cash products (savings account in a building society or in a bank, etc.)
Investing money, however, is a bit different than saving. While saving is certainly a more certain way of maintaining your finances, investing means exponentially growing your money on the side, without setting aside portions of your earnings. Essentially, investing is trying to make your money grow by buying things that will hopefully increase in value (property, stocks, shares in a fund, etc.)
To save or to invest?
Well, the smartest way to go would be both, actually. The question is not which one of these financial tactics to opt for, but how to handle both. This being said, saving money is always more important than investing it – your savings are the foundation of your personal life; without them, you have nothing but your salary.
From another point of view, yet arriving at the same conclusion, your savings are the foundation of your investments too – without having money saved up, you simply won’t have anything to invest.
When to invest?
Obviously, the real question isn’t whether you should save or invest, but rather, how do you know when to invest. This question can be covered by the general guidelines of saving:
First of all, your savings should be capable of covering the entirety of your personal expenses, such as mortgage, insurance costs, utility bills, loan payments, food, clothing expenses and so on, for six months at the very least. Why? Well, should something happen (losing your job, unexpected expenses etc.), with all the money you have saved, you’ll have wiggle room for adjusting your life without extra pressure.
Quite obviously, every extra sum of money that you have is investment-worthy. Investing in property is always a smart idea, however, it won’t show immediate success – it will take time until you’ll be able to get cash from the purchased property. On the other hand, the stock market is very volatile and, although it can prove extremely profitable very quickly, it can also completely ruin your investment.
Investing in gold is a relatively reliable idea that can earn you quite a bit of money very quickly. For example, a trusted gold bullion dealer can land you lucrative deals that will likely turn out to be awesome investments, as the price of gold is pretty stable.
When neither saving nor investing is an option
If you’re struggling to get your debts under control, or trying to make sure that your family is financially covered in case of your death (or any other similar situation), you shouldn’t plan neither saving nor investing.
It is essential that you realize that saving money and investing have little in common – other than the fact that you can invest your savings, they are completely different financial strategies. Knowing the right time for either of the two options, however, can mean the difference between getting rich and hemorrhaging money.