Savings and Investing. Now, you might be wondering, how are they different? Or are they? If you’re saving money, isn’t that a type of investing? You’re saving for your future, right?
Emma, The Money Whisperer, explains it like this. “Saving money means putting away with the intention that it will be spent on something at a future date. What is important here is that the money itself is intended to be spent, i.e., it will flow out of your life at some point.
“By contrast, money which we invest is not intended to flow out of our lives. Instead, it is used to buy assets with the desire that they will result in financial gain, and an inflow of money into our lives.”
Things To Save For:
An Emergency Fund
Success With Money’s Dr. James G. Salmons likes to call this his “Murphy Money.” He writes, “No one can anticipate exactly when financial setbacks will occur. An emergency fund is the best way to be prepared so that they will not be overwhelming.”
Big Ticket Items
This can include everything from new furniture, appliances, a car, a wedding or a deposit on a house.
With the rising costs of education, this can become a major savings need. Saving in advance is much preferred over incurring debt, but it requires careful planning.
When considering your personal retirement planning, it’s wise to save and invest for retirement. Salmons describes it as a “financial freedom fund because what you really want is to be able to support yourself without requiring a ‘job’–whether you choose to work or not–at any age.”
Vital To Invest
Since most savings is regarded as short-term, meant to be spent and usually doesn’t earn you much interest, it’s vital to invest your money for long-term growth.
As Emma reminds, “In contrast to saving, where our money is tucked away relatively safely, there is an inherent risk associated with investing in an asset. The future value of that asset is unknown.”
And Salmons suggests your investing be for income purposes. Look at it as part of your plan for financial independence.
In his opinion, “It should be looked at as a fun part of a complete life. Work your way step-by-step into a position of strength and engagement with the world of investment. Prepare for saving and investing by getting in control of your money and getting out of debt. It is hard to imagine anything that could more dramatically change your life.”
Save Or Invest First?
Investing is important. However, according to The Money Whisperer, you need to save and invest. “But work on getting to a stage where you are prioritizing investing!”
Starting with your financial goals in mind helps you have appropriate savings goals. Saving allows you to have enough money for your short- and medium-term goals. Without those goals, you’d have to use credit to realize them or sell whatever assets you may have invested in. Those assets are your money makers.
See Also: 2 Simple Rules For Building Wealth
The Smartest Way To Invest
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See Related: 7 Things About Investing That Millennials Don’t Know
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