We often have projects that we want to get into. Whether it’s a small project like renting a place or a big project like starting a business, you need cash. Unfortunately, sometimes, the money at hand just wouldn’t cut it. So, you either start saving towards it or invest.
Now, most people are open to saving— setting aside some money now and then until you have the desired amount. But there is a little bit more reluctance when it comes to investments.
However, if you want to meet your financial targets, you need to know how to handle both. This is why knowing when to save and when to invest is important.
It’s easy to want to stay safe all the time with savings. But if you ask the guys with the big bucks, they’ll tell you that you have to be ready to take risks if you want more.
That’s why in this article, we’ll take a look at savings and investments to help you make better-informed choices.
How Are Savings And Investments Similar?
Savings involve setting money aside for a particular purpose. This usually covers short-term goals like rent, getting a new car, a new gadget, and so on.
On the other hand, investments are monies you put into a business, purchase of an asset, stock, and so on. The purpose of this is to make a profit if its value increases exponentially.
Both savings and investments involve setting aside money for a specific goal or target. They’re usually geared towards better financial security and carrying more financial burdens. Also, both involve forgoing present pleasure for future projects or enjoyment.
People are more inclined to save than invest in things like college education funds. The reason for this isn’t far-fetched. While investment is likely to bring a greater yield, it is pretty risky.
The interest rates on such accounts do not allow your money to increase quickly for savings. You also won’t beat inflation, which reduces your purchasing power over time.
If you want to compare bank interest rates, Bankrates.com is a great resource. You can see what different banks are offering, and find the best deal for you.
This is unlike investments which can enable you to beat inflation.
Also, depending on the investment, you can strike it big. But then again, it’s possible to lose all sometimes in one fell swoop.
However, there are other things to consider when deciding when or what to invest or save. So, let’s look at some pros and cons of savings and investments.
Pros And Cons Of Savings
Here are the benefits of savings:
- There is little to no risk with savings as your money doesn’t decrease. This means that whatever you put in is what you get, plus a little more from interest.
- Also, you can reach your set goal within a specific time if you save continually and steadily.
Here are the disadvantages of savings:
- Since your money stays almost the same, you could lose purchasing power when inflation hits. This means the money loses value, and you can’t buy as many things as you could have before inflation. It can defeat the whole purpose of saving in the first place and may cause you to drift farther from your target.
- With savings, you have to save every penny to reach your target. Don’t expect any freebies or big interests.
Pros And Cons Of Investments
Here are the reasons why you should invest:
- With investments, your money does the work for you. It doesn’t just stay in a bank occupying space. Instead, it’s increasing and gaining more value.
- Since the return on investments is higher, you can reach your target faster than expected.
Here are reasons you might consider not investing:
- The risks involved in investments are high. One wrong move or the heavy hand of the market forces, and you can kiss your investments goodbye. This is why you need investing intelligence before you make any moves. Financial experts can also help you with risk management.
- With investments, you may have to wait a long time to access your money, particularly if you want to make the best of it. This is unlike a savings account where you can access your money anytime.
(Nonetheless, this can also be an advantage as you won’t end up spending your money unwisely and not meet your target. However, in cases of emergency, it will prove most unhelpful).
Despite their differences, savings and investments do go hand in hand. And both are important to financial success. First, you need to save; then, you need to invest for the best result.
Savings usually go for short-term needs, while investments are more long-term. When you combine both, it’s a win-win. Savings will make up for the deficiencies of investments and vice versa. And you can use what you’ve saved up to invest in a lucrative deal.
So, Here’s The Deal
It is said that wise people invest and save, and we couldn’t agree more. At the Art Of Financial Planning, we are skilled in helping you put your money to good use by knowing when and where to invest and save.
We know that your financial security is a priority, and we are interested in helping you achieve that and more, thus fulfilling your dreams. Who says you can’t do anything you want? You just need to know how to go about it wisely. So, go ahead and contact us now.
