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Saving versus Investing. Are you saving money, investing or doing both? Should you be saving, investing, or doing both? Which is best for you in your current financial condition? Is there really even a difference between saving and investing? We normally like to believe our money invested is synonymous with money being saved. But it is not. The media rationalizes this by explaining though the nation’s savings rate hovers around 0-1%; it’s okay, because we invest. But where does your investment money come from. From saving it!
Saved money is insurance. It is insurance against risk, against losing your job, against having a major unexpected repair bill or medical expense in the family. It is the backbone of you and your family’s financial well-being. Saved money grants you financial security. And the more you save, the more financial secure and independent you will be. Investing can mean entire array of risk. Risk of your stocks losing money, or even going bankrupt (Enron, MCI, the airlines, etc. etc.). Risk of interest rates rising, and bond prices falling. Risks of your broker swindled you, or coerced you though his sales pitch to buy speculative investments. Risks of the economy. Risks of a particular industry. Risk of losing your principal. Risk of losing it all, and then some (such as with margin calls). Should you be saving or investing? If you are struggling to pay monthly bills, living paycheck t paycheck, get out of debt, or move on past bankruptcy, you should not be investing your month. You should be accumulating enough savings, where you will a financial backbone to rest your finances. You should save a minimum amount equal to 6 months (or even a year or more!) of your income. If you are struggling to get ahead financially, what happens when the mutual fund portfolio you have worked hard to build up over the last few years suddenly lost half of its value? After you have built up a savings fund equal to 6 to 12 months of your income, then you are in a comfortable financial position where you can start investing your additional money saved. And you will definitely want to invest because of the great opportunity to grow your money. Consider the fact your money may grow 2 to 4 times faster invested in securities averaging 10% growth a year versus leaving it all in a savings account earning 2% a year. You can analyze our How Your Savings May Grow Chart and see just how much your savings and investing may grow. Save first. Build some financial security. Then start to invest and watch your nest egg grow. If you need help saving, we can help. Click here to begin learning how to save! |
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