Should I Save or Invest My Money?

If you had to choose between saving or investing your money, what would you choose? Should I save or invest? Some argue to save money and ignore investing, while others would choose to invest without any savings. The real answer depends on your financial situation. Everyone is at a different level of finance, and there’s no absolute answer that fits everyone.

Should I Save or Invest

It’s best to understand the difference between savings and investing. People can mix the two. Saving your money is storing cash in case of emergencies or for big financial purchases in the future. You have access to your savings within seconds and not need to wait for a certain amount of time.

Investing is where you make money, work for you to earn more than your initial purchase, however, this comes with the risk that you may make less than your initial purchase, depending on the type of investment.

If you need money immediately, then you’ll have to wait a few days or so to receive your money as you’ll be selling your investment for either profit/loss. Typically, these transactions occur during business hours, and you may need to wait longer if you sell on the weekend.

Factors of Savings and Investing

The main factors that separate savings and investing:

Liquidity – How fast you can convert an asset into money
Risk – Probability of losing money from your initial investment

Savings account are one of the safest forms of investments because they’re low risk and high liquidity. Also, as with most bank’s savings account, they are FDIC insured for up to $250,000.

FDIC insured means if a bank is out of business, or fails, then as a customer of that bank, you will get compensated for all your traditional bank accounts, but not investment products. The interest payout for a regular savings account is on average .001% – .010% for its low risk.

Investments have higher levels of risk, but in return, you will have the potential to gain a higher rate of return. The liquidity and risk vary from investments. Debt investments have a low level of risk, with an average of 2 – 5% interest rates. Stocks have a higher level of risk as they can change their stock price very quickly but have the potential for high returns.

Recommended Strategy

The recommended strategy is to build up your savings first before investing. Your savings should be enough to cover your living expense for up to 3 months at minimal or more. Your basic needs to have food, shelter, and clothing are more important than building wealth.

A study by BankRate.com shows on average, 66% of Americans don’t have an emergency fund to cover at least three months of living expenses. By establishing an emergency saving, you will reduce your financial stress and won’t have to worry about paying off bills and other expenses for a few months.

If you happen to be out of the job, you have time to reevaluate your spending habits and plan out how to reduce unnecessary expenses and find other opportunities to make more money.

After setting up your emergency fund, focus on repaying any debt you owe. Depending on your debt contract, the interest rate may continue to increase if you’re unable to repay the amount owed at a specific period.

If you invest your money instead of paying off your debt, then you’ll likely have negative returns because you’ll have to consider both the rate of return of your investment and the interest and debt you must owe back.

After building up your emergency money, you want to invest and make your money work for you. Take the excess money after you calculate your monthly living expenses. Then take a percentage of how much you’re willing to invest and set the rest for personal spending.

Investment Consideration