INVEST VS SAVE
Should you invest or save? What is the difference between saving and investing? Why should you save or invest? These seemingly trivial questions are important questions that some people cannot really answer. This is alarmingly unfortunate because investing and saving remain one of the paramount keys to building tremendous wealth. Through understanding the keys to wealth, it becomes surprisingly simpler to use them. Becoming rich doesn’t have to stay evasive and or a dream, everyone can accumulate wealth but the devil comes in your discipline and consistency in following through with the lessons gained from the keys
Are they short-term or long-term goals?
There are two types of goals: short-term and long-term goals. Short-term goals generally refer to goals which you hope to achieve in at most the next 3 years. The beauty of short-term goals is that they are realistic and measureable consequently, there is a lot of motivation and encouragement to achieve them. Long-term goals on the other hand are abstract. They tend to have a vague time-frame and are difficult to visualize. Nevertheless, one of the strategies of achieving long-term goals is breaking them down to actionable short-term goals. To achieve short-term goals, the easiest and most appropriate tool is saving. Incidentally, one of the golden rules of saving is save with something specific in mind. Investing on the other hand is a great tool for long-term goals. The vagueness of long-term goals makes investments appropriate because of they have a higher rate of return in the long-term.
How soon do you want to access the money?
This is in line with the type of goals you have. Savings are about putting money aside in a bank account where it will earn interest with time. While some bank accounts have restrictions on how soon or often you can withdraw money, others do not have. Nevertheless, it is still easier to access money that is in a savings account than that is tied to an investment. This characteristic of savings makes it more appropriate for short-term goals. Investments on the other hand, are about putting money into things whose value you believe will increase over time. It is therefore implied that it will take time to recover your money let alone make a profit. However, this is what makes them perfect for long-term goals. The vagueness of long-term goals fits well with the slow return rate of investments.
How much risk do you want involved?
Bearing in mind that the riskier option may give you higher returns, savings are considered low risk while investments riskier. This is because returns on investments are based on good faith while those on savings on legally binding contracts on the rate of interest. Nevertheless, the risk involved in investing is what will make you a lot of money in the long run. There is a price to pay for low risk. It is well-accepted that in the long run the returns of savings accounts are way lower than those of wise investments. Another reason that investing is recommended for long-term goals. However the fact that saving accounts are low risk doesn’t mean that you should shun saving. In fact, saving is a very suitable method to achieve short-term goals. The truth is no one wants uncertainty to surround a goal they hope to achieve in two or three months. With saving, you will not have to worry about that. You will get the money you put aside, plus a bonus.
In conclusion, it is wrong to wholly rule out saving or investing. Both are beneficial in wealth creation albeit in different circumstances. Nevertheless, it is safe to say saving should be your go to for short term goals while investing for long-term ones.