What’s the Difference Between Saving and Investing?
Saving and investing are two methods of potentially growing or preserving money for the long-term. Rather than spending your cash on instant gratification or immediate bills, you place it somewhere else, with the hope of being able to either access the same amount later, or potentially unlock more money via the right investment strategy. Some people look at saving and investing as the same concept, because both strategies take money out of your hands and prevent you from using it in the moment. However, the overall purpose and functionality of these two strategies are quite different. Here’s what you need to know about investing and saving.
Defining Investing and Saving
Saving is the act of placing some of your cash aside, bit by bit, to gradually build a reserve fund, or enough money to purchase something specific, like a home or a new car. You usually save for a decent amount of time, over a couple of months, or years, to achieve long-term financial goals. Investing also places small amounts of your money elsewhere. However, rather than just keeping your cash in an account so you don’t accidentally use it, you actively buy other things, like shares or stocks, futures, and mutual funds, with the hope of those assets gaining value over time.
Some people invest more aggressively than others. For instance, if you’ve got a decent amount of excess cash available, you can get involved with day trading. This kind of investing involves regularly moving in and out of positions with trades, rather than holding onto assets and waiting for them to appreciate in value over time. You can check out an online guide for day trading for beginners to help you get started.
Who Needs to Save?
Most people should be putting at least some of their cash aside regularly for savings purposes. This ensures when unpredictable things happen in your life, you can deal with them as positively as possible. Almost all financial professionals recommend having an emergency fund covering around three months of your living expenses before you begin risking your cash anywhere else. If you have financial goals in mind, you should also be putting a small portion of your finances away each month to accomplish those targets. The exact amount you save will depend on a lot of things, including how much you earn, what you want to do with your money, and how much you usually spend on monthly costs.
Who Needs to Invest?
Investing, like saving, is something that can benefit most people. However, it’s generally better to look into investing after you’ve already paid off your debts and got your emergency savings under control. Once you’re safe and balanced from a financial perspective, you can begin to look into making the most of your available money – the cash you have left over to spend after you pay your bills. How you choose to invest will depend on a number of factors, including how much cash you have, and whether you want to earn quick, short-term results, or long-term growth.