Save vs. Invest: Which One is the Right Option for You?

By February 15, 2020 Business Advice

You want a secure financial future but feel uncertain about the best ways to make that happen. Many people in your position get to the point where they consider the question of saving vs. investment. Which one you should do first or whether you should plan to do both depends on your financial goals for the future. For example, do you want to retire early, fund your child’s higher education, or travel the world? While your goals are as unique as you are, they’re worth considering as you make these important financial decisions.

Understand That Saving and Investing Are Very Different Things

While both saving and investing can help you reach future goals, it’s essential to understand the differences between them before deciding to pursue one over the other. The most common avenue of saving money is putting aside funds in a savings account you open at a bank. You can add to or withdraw the funds at any time.

However, traditional savings accounts aren’t the only way to use a bank to save money. You can also consider money market accounts, purchasing bills through the United States Treasury, and similar options. What each has in common is that you can access your money immediately or with minimal delay, if a financial need arises suddenly or you have reached your savings goal for a specific purchase.

Investing money, on the other hand, means that you purchase an asset or certain capital that you feel will grow in value over time. This requires you to complete due diligence and research the potential investment in advance to maximize your chances of earning a decent return on it. While you may lose money at times with long-term investments such as stocks, the goal is always to sell it or cash it in for a profit.

Consider Building an Emergency Fund if You Don’t Already Have One

It’s a common recommendation in personal finance to establish a savings account equivalent to at least three months’ worth of living expenses. This gives you a bit of extra breathing room if you have an accident and can’t work, need major home repairs, or experience another type of urgent situation. The ability to access the money immediately is also important. To come up with a savings goal, be sure to include what you spend each month for mortgage or rent, food, transportation, utilities, and other essentials.

Savings accounts are ideal for large cash purchases that you intend to make in five years or less. You may wish to consider investing once you feel confident that you can meet your family’s basic and immediate needs.

Investing to Meet Medium and Long-Term Goals

A medium-term goal is one that you plan to meet in the next five to 10 years while a long-term goal is something you hope to achieve more than 10 years from now. Before choosing stocks or other investments, keep in mind that the current inflation rate can make the investment either lose or gain significant value. Researching inflation as it stands today as well as historical patterns can help you make the best possible investment decisions. Financial planners typically recommend diversifying your money to reduce the risk of loss as much as possible.

Looking for Specific Advice? Contact Aura Wealth Management Today

At Aura Wealth Advisors, we understand that knowing where to start with save vs. invest can be a challenge. We invite you to learn more about our company and then contact us to schedule your initial consultation with a financial advisor.