Managing money is a challenge that everyone faces in adulthood. It’s not glamorous or fun, but it’s an important part of life, and understanding how to deal with your finances effectively is crucial. If you know how to save and how to invest, you can make your money work for you, giving yourself more free time and getting your dollars to stretch further.
Saving and investing are very different actions, and understanding the difference is crucial for money management.
What Does Saving Money Involve?
Saving money is something which most of us are familiar with; it involves setting aside a portion of your income. Usually, this will be placed in a separate bank account, often one with a reasonable rate of yearly interest. “There is little to no risk involved, but the gains for this money will be minimal – only the interest it accumulates. You can usually access any money in your savings quickly, with perhaps some minor limitations” says Althea Hills, a business writer at 1 Day 2 write and Origin Writings.
What Does Investing Money Involve?
Investing is something you can also do with spare cash, but it’s a high-risk, high-return strategy. You usually invest by buying stocks and hoping that they will increase in value over time. Investments are usually a long-term strategy; you won’t normally be looking to take the money out again in the near future. It’s important not to invest using money you’re likely to require soon, or you may end up selling your investment at a bad time and losing out overall.
The higher reward investments tend to also involve greater risks, so it’s important to consider both factors when weighing up investments. You should always look at investment money as money you can afford to lose – because you might. There is no guarantee that you’ll get it back.
What Similarities Do They Have?
Both savings and investments are made with the aim of safeguarding your money and getting it to earn a little more – either through interest, or through an increase in the value of your stocks.
Likewise, both are made using money which is “spare.” You can’t save or invest with money which you need to live on, so to make either savings or investments, you need to be putting money aside. This is a good practice, even if you can only save small amounts at a time; being disciplined about how you spend money is essential, and having some savings to fall back on in hard times is crucial.
How Should I Balance Savings And Investments?
You should always save first, and always keep some money in your savings regardless of how well your investments are doing. “If times get hard, you don’t want to have to sell investments to make ends meet – because investments are likely to be low when things are difficult, so you’re more likely to make a loss. Having ready savings allows you to take advantage of peaks in the market and only sell when your assets are at their most valuable” says Dylan Lowe, a finance writer at Writemyx and Brit student.
How Should I Invest?
Once you have secure savings – advice generally suggests you should have enough to cover you for six months of expenses – you can start feeding into investments. Remember that you are likely to lose money at times, especially at first, and start out slowly. Don’t throw money wildly into things, but do thorough research and invest small amounts at a time. Always be prepared to lose your investment money, and never put yourself in a situation where this would cause financial hardship, no matter how tempting the opportunity looks.
You should also get expert advice before investing any significant amounts of money. The investment market is a complicated and ever-changing world, and if you don’t know what you’re doing, you are likely to lose out. Do your own research as well, even if this takes a lot of time; the more you understand about investing, the more likely you are to benefit from it.
Investments and savings are crucial for safeguarding your wealth, especially in difficult times. Putting money aside is a very important aspect of being responsible, and may make all the difference to you and your family if tragedy strikes, so pay attention to money management and work out what you should be saving and what you should be investing to protect yourselves and those you love.
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