Saving vs. Investing: What Route Should You Take?
While the concepts of these two financial routes are different – with saving being the practice of putting money aside for future uses and investing being the practice of purchasing various assets with the intention of earning a profit, they both have the goal of achieving financial security in common. That being said, despite this principle of saving and investing relying on being financially disciplined today for a prosperous future, the two are very different. But how do you know when to save and when to invest, which route is better for you, and what you can do right now to start this journey towards financial security? To find out the answer to these questions and more, keep on reading this article.
Check Your Current Circumstances
Before deciding whether you should start to save money or invest it, you should ask yourself the following questions:
- Do you have a satisfactory emergency fund? Before deciding between the two, you should look at the money you have successfully secured up until this point. Of course, this does not mean that you can start investing only when you have successfully saved for retirement. Rather you should sincerely look at your lifestyle, your monthly expenditure, and how your savings can cover this in case your income source stops one day. 3 months to 1 year of monthly expenses, depending on your familial status and support is what you should have ready in your savings account before deciding to invest.
- The second thing you want to consider is whether you can commit to leaving the money in place in the long run. Even the best investment plans will not bring you a considerable return if taken out earlier than expected, so you need to be sure you have the financial capacity for patience.
- At the same time, can you handle the market with its ups and downs? Investing, in the long run, means that you will see and experience the fluctuations of the market. If you are willing to take the risk to have your money go through both flourishing and dry seasons of volatility, then you can contact your stock brokers that use the MT4 trading platform and get down to investing.
Pros of Saving
The next thing you want to consider are the pros of saving. Some of the most notable pros are that cash remains steady and does not fluctuate in value, the cash you have saved is available for immediate use, and investing is directly dependant on your savings (you need to save first to be able to then invest your money).
Cons of Saving
Some of the cons of saving that are worth considering are the fact that over time your money can lose its purchasing power as a result of inflation as well as the fact that to reach the same goal, you have to save more money compared to the higher returns that come with the investment opportunities.
Pros and Cons of Investing
While you can have a high return as a result of your investment, it can also decrease in value. Reaching your goal might cost you less, but on the other hand, you might have to wait longer if the investment decreases in value before you reach your goal. Finally, it is important to understand that saving and investing do not have to exclude one another, and if you are planning to reach financial security you must learn how to use both to your advantage.