Why Investing is Better Than Saving?
By definition, saving means putting away money for later use in a safe place, like in a bank account while investing means taking some risk and buying assets that will ideally increase in value, and provide you with more money than you put in, over the long term.
It’s up to you to decide whether saving or investing is the better choice to reach your financial goals. Whether you’ve been working on your finances for years or you’re just getting started, it can be difficult to know when you should be saving and when you should be investing.
Saving is the safer route if you don’t have an emergency fund. You should also prioritize saving over investing if you’ll need the cash in the near future. You should invest what you can if you’re eligible for a 401(k) match.
The dollar amount in your bank account won’t decrease unless you withdraw funds, but interest rates on savings accounts are often lower than the rate of inflation and don’t allow your money to grow very quickly.
This means your savings could lose purchasing power over time. You may be tempted to want to invest to receive higher returns and beat inflation. Unfortunately, the value of your investments won’t always go up. In certain cases, investments can also become completely worthless.
There’s a difference between saving and investing: It is widely recommended to save at least three to six months of living expenses.
Is saving better than investing?
It’s better to save rather than invest if you don’t have an emergency fund or if you’ll need the money within the next few years.
How much should you keep in savings vs. investments?
You should prioritize saving enough cash to cover three to six months of living expenses. You could also consider investing money once you have at least $500 in emergency savings.
Once you’ve paid off high-interest debt, topped-up your emergency fund and don’t anticipate needing a lot of money in the next few years, you may also consider investing more money.
When to save and when to invest
Every person’s situation is unique and you should base your decision based on your particular situation. If you’re not sure what to do, consult a financial advisor that can help you decide.
Build your retirement account
Build your emergency fund
Paying off debt
Max out your retirement accounts
Factor in one time goals
How to decide whether to save or invest
Deciding whether to save or invest for a particular goal can be quite difficult. You can save the money you absolutely need and invest the money that would be nice but isn’t necessary to meet your base goal. The key is being able to delay your goal.
What’s the difference between saving and investing?
If you’re still not sure whether to start investing, or if you should focus on saving, the answer may depend on your goals, risk tolerance, and current financial situation.
When to save
When you shouldn’t save?
How to pick a good savings account
Certificates of Deposit
Money Market accounts
Pros of saving
Cons of savings
Consider investing more money if:
When to invest
Why investing matters
Investing is an effective way to put your money to work and potentially build wealth. Smart investing may grow your money to outpace inflation and increase in value. The greater growth potential of investing is mainly as a result of the power of compounding and the risk-return tradeoff.
Are you ready to invest?
How to choose the right investments
Building wealth through investments can start at any age and at any income level. The key is to choose the right investments for you based on the following considerations:
Cons of investing
Pros of investing
When is it best to stop Investing and put more money into savings?
You'll often hear that investing your money is a great way to grow it into a larger sum over time. And that's true.