We have all heard the expression “Make your money work for you”. Most of us having savings accounts, and a lot of people associate saving and investing, but the truth is they are quite different, and they both have a place in your portfolio. While they do both have a place in your finances, it is important to understand the difference.
Everyone knows what a savings account is, and most of us have them, but in short, saving means putting cash into an extremely safe account. Savings accounts are great for having a reserve of quick cash that you can access at any time, but typically have a very low interest rate.
Investing your money includes more risk than just setting aside money, but this is how you really make your money work for you. With investments, there is never any actual guarantee that you will get a return, which is why you have to do your research before investing. The most common forms of investment are stocks, bonds, and real estate.
Since we all try and save money, how can we make the pivot into investing our money? As a general rule of thumb saving should always come first. Your savings account is your fall back plan in case of emergencies, and if possible, you should have enough saved to cover at least six months’ worth of living expenses. Any goal you have in life that can be fulfilled within five years should be based on saving, not investing. Investing is safest and has the greatest return when done long term, you don’t need a get rich quick scheme. Think saving for a new car versus saving for retirement.
Once you are stable savings wise, then it’s time to put money into investments. Like we said before, you want to think long term here. The stock market can be extremely volatile at times and if you are playing the short game you can lose out big time. Investing in long term assets is a great way to set up your financial stability as you start focusing on retirement.