- Emma Anderson
- December 30, 2020
Having spare money in your pocket needs to be used sensibly to avoid any financial crunch. There may be many questions arising in your mind relating to your money safety.
Should you save that money or you should go for good investment options? Should you risk your money and invest despite low-interest rates? It all depends on your financial situation.
Saving vs. investing
Firstly, it is essential to understand the concept of savings and investments. Saving money involves collecting funds over time. You might save money and keep it aside gradually.
If you wish to buy something that is not in your budget at the moment or is too expensive, savings may be a saviour for you to fulfil your wishes.
If not buying anything, you might save for a car repair or home renovation. Usually, savings are done in a bank or a society, where you earn interest on your savings amount.
You can choose your interest cycle, i.e. annually or semi-annually or quarterly.
Investing helps in increasing the value of a thing over time. Investing money helps you buy property, stocks or business shares. You can earn profits on your investments by selling it overtime.
The risk factor involved in investments is much higher than it is in savings. You can earn a lot of money on your investments of it goes well, but if it doesn’t turn up, you want it to be, you may incur severe losses.
Therefore, it is advisable not to invest more than what you can manage to.
Saving or investing may depend on your situation. If you have a tremendous amount of debt on you, probably investing is not a good option for you as it may be a risky affair.
But if you have a good pool of funds, you can consider the option of investing.
If you think of savings, what to do with savings?
Savings can be a saviour for you in case of a financial emergency. It gives you financial freedom.
It is advisable to form a savings pool that will help you to cater to your living expenses for at least 3 months. Your savings account should be easily accessible, be it in a bank or anywhere else.
The purpose of savings is to collect funds for some time in case you are out of work. In the case of temporary unemployment, you should be able to bear your expenses such as house rent, buying food or paying medical bills.
The critical tip is to save a minimum of 10% of your total income to have a substantial pool of savings. In order to save an amount, you can use a budget planner and evaluate your cost-cutting options.
Before you start thinking of saving or investing your money, it is essential to clear all your outstanding debts. You can consider the following points:
Here’s what to do:
- List all your outstanding debts
- Check out which debt has the maximum charges
- Pay off the debt that has the highest interest charges
Short, medium and long-term goals
Your savings or investments depend on your financial goals, whether short-term, medium-term, or long term.
The time frame of your short term plans is 5 years. This includes the things that you plan to do in the next five years. This may consist of buying a car or a memorable vacation.
For this short term goal, savings is the best option as an investment could make a loss for you.
Your medium-term goals involve things that you plan o do in the next 5-10 years. In your medium-term goals, you need to weigh the options of both savings and investment. It all depends on the risk factors involved and how much risk you are willing to take.
The risk involved is lesser in savings options, but not much of interest can be gained out of it. Whereas in investment option, the risk is directly proportional to the interest earned.
Investment option is riskier than savings, but there are higher chances of making more money.
Your long term goals involve a time frame of what you want to do more than 10 years from now. These long term goals make the investment option lucrative.
To decide between savings and investment options, you should consider your goals that match your mode of accumulating money.
Before going for the savings option, you should always build up an emergency fund that should be easily accessible if you need it immediately.