Whether you want to save or invest is an important decision to make. If you are getting started with your career, it’s a tough decision for you to decide whether to save or invest.
Saving is a much safer option because the cash you save in your account won’t reduce on its own. However, the interest rates on saving accounts will not rise quickly. Also, the interest rates are low and will not facilitate your financial growth.
If you invest your money, you can get a higher return on it. However, sometimes your rate of return can go down rather than going up, and in some situations, it can be worthless. So, to decide when to save your money or invest, here is what you need to know.
PROS OF SAVING
Investing involves more risk whereas saving can prove to be more beneficial over time. There is a good reason for this. The savings you do will remain in the account, whereas in investment, there is a chance that you might lose your base money. To become successful through investments, you have to be prepared both for profits and losses.
Saving also assists more in achieving goals than investing. Saving each month is a good strategy. Take the base money of yours, and calculate how much money you would need to reach your desired goal. Then, save money each month until you reach your desired amount.
PROS OF INVESTING
In some cases, investing is seen as a beneficial step in life. It causes the base money to grow at a faster rate than the savings account process. In other words, you have a higher percentage of return on base money from the investments. The advantage of investment is you don’t have to invest as much money as you would have to put in savings to reach your desired goals.
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CONS OF SAVING
Savings can also become a downside to your goal though. Due to rising prices, your savings can lose their value over time, but the bank interest can save it. Bank interest usually saves you from the negative effect of rising prices. But sadly, the interest barely keeps up with the rising prices.
When saving money, you have to split the total income of each month and put the saving part of the money in the bank. In a savings account, you will get a very low percentage of interest. This may slow you down in achieving your goal.
CONS OF INVESTING
Investing is not always the right choice because you can face loss, and it can also go down in value over time. It is not in your best interest if you need money right away. Generally, you need to hold your investments as long as possible to avail maximum benefits. Investing is a complex thing to do, so you need experts to manage your investments, or you must educate yourself before you start investing your money.
SAVING VS. INVESTING
Saving is beneficial when you are in need of money. You need to put your extra income aside if you are willing to spend it in the future. Also, saving can be used to fulfill long-term future demands. People usually save their money in a low-risk account, or they can maximize their capital by using the highest annual percentage yield (APY) savings account.
Investing is kind of similar to saving. In this case, you need to put your money aside whenever you get the opportunity to invest it to get more money. These types of investments are the stock market, bonds, mutual funds, ETFs, and business farms. You need to create a brokerage account for buying or selling shares. It’s essential to know the risks of investment. If you think that you won’t need that extra money for anything, then you can think about investing that.
WHICH ONE IS BETTER – SAVING OR INVESTING?
Your saving and investment decision depends on your financial situation. If you need your money shortly, then you should save that in savings accounts or CD. Also, you can save money for emergency needs. If you don’t need your extra money for two to three years or more and you are ready to bear the loss, if any, then you can think about investment.
There are real-life examples for you, such as if you have your child’s school or college tuition fees, then you should save money in a savings account or short-term CD. Otherwise, you will think about spending it on the stock market or buying a house or something. Also, you need to save money in emergency funds, which you will use in times of need. If you are sick, lost a job, or in a debt situation, then you will have your emergency savings fund which you can use.
Investing is better if you are trying to use your extra money for a long-term project to grow it more successfully and you are willing to take the risk of ups and downs by investing it in the stock market or other business. If you are a beginner and want to make use of your extra money, then try to check growth stock mutual funds. But you must do your research before investing your money.