Saving Or Investing
Now that you are familiar with several savings and investment schemes, you must be wondering, Which is best for you, Saving or Investing? – Which one is ideal for a beginner?
The following essential differences can be pointed out between saving and investing –
While savings refer to simply setting aside money for a goal, investment is the process of buying assets with these savings to grow our wealth.
Savings are mostly done for achieving short term goals, while some medium-term goals can be achieved through bank deposits as well. Investments, on the other hand, are needed to achieve long-term goals, which have to be reached at least ten years from now.
Savings pose minimal risk, whereas when it comes to investing, one can find products offering products to suit different risk appetites.
Savings is usually carried out through bank accounts and deposits, and government saving schemes.
Investing is carried out through the various segments of the stock market, namely, equity, debt, and derivatives.
How to decide whether you should Save or Invest?
It can be deduced that long-term goals should be backed up by investments and short-term goals should be achieved through savings. Thus, one way of deciding whether we should save or invest in the type of goal we are setting money aside for. Another factor affecting this decision is your financial situation.
Here, some elements of financial security, like an emergency fund, require savings first.
Also, if you are currently having some debt obligations at hand, you should focus on saving the required amount, and use it to pay off your debt. However, in the absence of debt, you can concentrate your savings towards investing dedicatedly. Lastly, another factor affecting this decision is the rate of return you are looking for. If you are relying on higher returns on a sum of money to bring you closer to your goals, you need to invest your money. If not, savings products are adequate for you.
Should you Save and Invest together as a beginner?
An important point to note here is that, for a beginner, saving should always come before investing, and never together. Why?
Firstly, how will we invest, if we don’t save any money for it? Also, a beginner to saving and investing will be someone who has just started earning money. At such a position, one needs to ensure that they first have their financial goals and priorities laid out for them.
While they figure out their goals, they should build the habit of disciplined saving. Once the discipline is built, a beginner will find it easier to build the habit of investing in the near future as well. Therefore, as a beginner, save first, build the required discipline and funds needed to invest, then invest. As we saw through this writeup, we can come to the conclusion that both saving and investing are fundamental steps to ensure that we can be as financially secure as possible. While saving builds discipline, investing helps us grow our wealth, provided that we know how to invest in the stock market.