Skip to main content

How to Manage Your Money: Saving and Investing

Saving and investing are both great ways to create financial security in your future. Whilst the methods differ, they both have the same aim: boosting your future wealth. But it can be difficult to decide whether you should save or invest your money. 

Which Suits You Better? 

The main difference between whether you should save or invest in the period you are focusing on. As a general rule, it’s better to focus on saving if your goals are within the next five years, and invest if you have a longer time frame. 

Decide what you are hoping to achieve in the future, and see if saving or investing is the more appropriate way to reach your goal. If you have debts or loans to pay, it’s usually better to pay these before you move your focus to saving or investing. So it’s important to maintain some financial security for your day-to-day expenses first.

person choosing between saving or investing
Is saving or investing a better route for your future?  

 

Is saving or investing a better route for your future?  

A cash cushion is a certain amount of money that you keep in your checking account for emergencies or unexpected situations. It usually covers three to six months of expenses and protects you from falling into your overdraft. Before you start saving or investing seriously, make sure you have a cash cushion as a form of protection.  

Investing and saving are both good options for medium-term goals. You should choose based on what is more suited to your specific goal.  If you are planning on buying a house in seven years, you know you will need the money. For this, saving is most appropriate, as it’s guaranteed that the money will be in your account when you need it. 

When your goals are more flexible, you can invest your money instead. As it’s slightly riskier, you don’t want to invest when you know you will need the money, but when you see an opportunity to increase your wealth comfortably.   

Read Now: Why You Should Open a Savings Account 

Saving  

Saving is seen as a low-risk method of maintaining financial security, and is most appropriate for shorter periods of time. Short term goals are things that you are looking to achieve in five years or less, and might include saving for: 

  • A house 
  • A trip or holiday  
  • A wedding or event  
  • A car 

Your savings can be accessed straight away, and it’s a safe way to store money. However, saving isn’t a completely risk-free method. Although you don’t lose money, the rates of interest are not equal to the rates of inflation. This means that the value of your money can decrease over time, as inflation rates increase.  

saving cash in a piggy bank
Saving is good for short-term goals and emergencies. 

Savings can also be accessed immediately for emergencies or unexpected circumstances. If something breaks, or you have a sudden vets bill, your savings can help you cover it straight away.  

Read Now: The Fundamentals of Inflation 

Investing 

If your financial goals are more long-term, investing might be the better choice for you. Investing involves putting your money into something that you hope will increase in value over time. This can include: 

  • Stocks and shares 
  • Bonds 
  • Property 
  • Funds 

When you invest your money, you have to accept that there is a level of risk that goes with it. Unlike saving, you can’t be sure that what you’ve invested in will increase in value. By giving yourself a longer investment period, you have the space to recover if your investments fall in value.  

Read Now: The 5 Best Investment Apps for Beginners in 2022 

The stock market is constantly changing, so you need time for it to rise and fall. If you are investing short-term, you might not have enough time to increase your money. This can help to reduce the risk of investing, as you have more time for success. 

checking out market rates diagrams
It takes time for your investments to increase in value.

You can also reduce the risk by diversifying your investments. Diversification refers to investing in multiple different companies and platforms, to give you a higher chance of success. When you invest in just one company, you are relying on them to succeed for your investment to increase in value.  

This puts a lot of pressure on that company – if they don’t perform well, you will get back less than you invested. By diversifying your investments, even if one company doesn’t perform well, you still have other chances to succeed. 

Read Now: How to Invest in Common Stock  

Summary 

Saving and investing are both great ways to prepare yourself for a financially secure future. Whether you are focusing on long-term or short-term goals, it’s important to prepare for a financially secure future. Take a look at what your financial goals are, and decide if you would be more comfortable saving or investing to reach that goal. Each person and each situation is different – once you make a choice it doesn’t have to be permanent!  

If you want further advice on how to handle your money and prepare for the future, don’t hesitate to contact the team at Count today!  

Start with Count today

Signing up for Count is easy. We think once you experience truly stress-free financial processes, you won’t want to go back.