Saving to Invest; Critical Points to Consider

Worldwide, many breathed out a sigh of relief when Covid-19 lockdowns were phased out. And with economic activities coming back to life, there’s more income generation. This leaves a financial dilemma for many income earners: Should I save or invest my hard-earned money?

Saving and investing are two great ways for you to achieve financial security. Savings come in quite handy when we incur unexpected situations forcing us to spend money or meet emergency requirements. It gives us a sense of security knowing that if anything happens, we’re prepared. You may decide to save by accumulating currency in the form of cash holdings, or depositing the money into your savings account, pension account or any investment fund.

The process of investing occurs when you purchase an asset with the hope that it will grow and give good returns in the coming years. Investing helps you create wealth. Your money can appreciate in value in the form of gained capital, interest earnings, dividend income, and rental income. Different investments (also known as investment vehicles) include stocks, bonds, mutual funds, commodities, options, forex, deposit accounts or any other interest-earning assets.

New investors need to understand that the bigger the risk you take in investing, the greater you earn. Savings cushion you from losses incurred when you invest. Remember, invest only what you can afford to lose. And no amount is too small to invest. Always seek to learn how the little savings you have can earn you interest, make you a profit or even earn dividends for shares you buy.

You could choose to either save or invest as a way of building a sound financial base for yourself. However, with financial literacy and sound advice, the financial decision you make will be tied to a goal within your wealth vision. Both can help you achieve a more comfortable financial future. We offer knowledge on principles the wealthy use to choose when it’s best to save compared to when it’s best to invest.

It’s such a relief to know that economic losses, poor planning and judgement and a host of financial pitfalls can easily be avoided by practising these principles.

The biggest difference between saving and investing is the level of risk taken. Saving typically results in you earning a lower return but with virtually no risk. In contrast, investing allows you the opportunity to earn a higher return, but you take on the risk of loss to do so.

Invest is favourable when you have :

  • Cash emergency fund. This cash cushions you in case risks occur. Any asset you buy can lose value or fail to produce the income you expected. Stocks, for example, rise and fall in value daily.
  • Constant income. This allows you to grow and keep your investments instead of selling too soon, limiting your profit and/or income potential.
  • No high-interest debt. Paying off debt guarantees your return and safeguards your future interest expenses. Investing is less certain in terms of return potential and timeline.

Savings help you meet surprise expenses or emergencies. Conversely, investments are made to generate returns over a period for you to create personal wealth.

Understand the risk in an investment and see whether you can afford it. Unlike investments, savings have fewer chances of losing your hard-earned money.

To conclude, always remember to set aside a part of your income for future use or productive uses to multiply your money over time. Your journey in financial fitness is always made easier by having a solid saving culture and wise investing.

We believe that the choice you make and the action you take is the best way to take control of your finances and build the future you want.

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Financially Fit

Financially Fit

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Financially Fit is the global leader in personal wealth education offering personal finance education to individuals, families and businesses and nations.