Saving and Investing Money

Learning to save and invest your money wisely is the first step in creating a solid foundation for financial success. At Financer.com we lay out the basics to help you borrow smarter and save more through low lending and wise investing.

Frequently asked questions

What are the benefits to saving money?

Saving your money has a number of benefits. First, having money saved up so it can be used in emergency helps protect your finances from unexpected financial burdens. This can save you from having to use your credit cards or take out a loan. Next, banks offer interest on savings accounts. While it is not very much interest, it is something that compounds over time, so eventually your money is earning for you. Saving money can also help you make a large purchase, such as a home or car, which often require a down payment.

Why should I invest my money?

Investing is perhaps the best way for someone to grow their money. An investment portfolio can help you grow your money for the future, especially retirement. By investing your money, you can earn a substantial amount more for the future.

What is a diversified portfolio?

Diversifying your portfolio means you have multiple, different types of investments. This can include almost anything, such as stocks, bonds, real estate, and more. By diversifying your portfolio, you limit your potential risk because if one investment loses value, you have others to prop up your portfolio. This is why it is always recommended that you diversify your portfolio of investments.

Why is investing for retirement such a big deal?

Most companies have already moved away from offering pension plans. Because of this, it is up to the individual to prepare for their retirement. This can be done in the form of savings and investment. Most employers offer a matching option for contributions to 401(k)’s, a retirement investment account. By investing now, you can ensure your money has time to grow, earn compounding interest and create financial security for your future retirement life.

The Benefits of Saving and Investing Your Money

When it comes to building a safe and secure financial future, there are two things everyone needs to do: save their money and invest their money.Helps cover unforeseen expenses

The two strategies go hand-in-hand. More often than not, individuals’ savings and investments are one and the same.

So let’s look at the differences between saving and investing, why you should be aware of them, and how to use them to your advantage.

Saving Your Money

  • Ensures a financially stable future
  • Enables you to take opportunities
  • Helps reduce stress from financial pressure

Saving money is the number one suggested way to make yourself financially secure. The question of why you should save money is something everyone should answer when budgeting.

People often take saving money for granted, but it is important to look at the reasons for saving.

Emergency Expenses – Unexpected Needs For Money

Perhaps the foremost reason to save is to have an emergency fund. 

No one knows what the future holds. People can experience job loss, emergency dental or medical expenses, unexpected car repairs, and many other situations that they have not budgeted for. Any one of these can have a devastating effect on a person’s finances.  

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Having personal savings such as an emergency fund available can mean that when an unforeseen financial expense or situation arises, money is available to help get through the tight spot. This can be the difference between being able to stay afloat financially and going into debt.  

Saved money and proper insurance are essential for preparing yourself for the unexpected and can keep you from losing your possessions and financial independence.

Personal Saving For Large Purchases

A second reason for saving money is for future use on large expenses. Very few people have the option of buying a car or house with just their earnings. 

Find out how long it takes to buy a house here.

Most large purchases require a substantial deposit, so money needs to be saved for this. It is a good discipline to work towards a goal and establishes the sound habit of saving money for future purposes.

Savings Help Cover Variable Expenses

Besides fixed expenses that are easier to budget for, there are variable expenses that a person should save for. These are often of an unknown amount and are can be quite substantial. 

These expenses include gifts, birthdays, Christmas or other festive celebrations, and holidays.  

Personal Savings Brings Peace of Mind

When a person knows they have savings to enable them to withstand the occasional unexpected expense, and that they are progressing in saving money to be able to buy big items, they can experience peace of mind.

They also have the emotional reward of knowing that their foresight and self-discipline have put their personal finances in a healthy state. Everyone likes knowing they are secure, so with some money saved away, you don’t have to constantly worry about any of the reasons above.

How To Save

So now that the reasons for saving money have been established, the question of how to save money arises. Fortunately, there are some simple and straightforward suggestions that most people can follow to enable them to save money.

The most frequently suggested rule is called “20/30/50 rule”, with 20% of income going towards savings and debt, 30% of income used to pay for your living expenses, and 50% for all other expenses.

  • Read more on the 20/30/50 rule here.

While all of the ratios are important for a balanced budget, we are going to focus on the 20% aspect of the rule. This rule is very useful for those who are first setting up a budget or learning how to handle their money.

Saving money can be complicated for anyone, and individual circumstances vary greatly. Taking that into account, it is highly beneficial to save 20% of your income every month if you are able to. This will allow for consistency and a standardized budget.

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Although 20% of income savings is the recommended standard, it is not always possible for everyone. In those cases, try to use smaller ways that can add up on savings. You may have to get creative when finances are tight to save money but it is possible.

There are two ways to do this. The first is to save whatever small amounts one can. This could include putting extra change into a jar every day after getting home.

  • Here are 12 fast ways to get money now.

The other way is to decrease expenses. This could include for example spending less on eating out and on entertainment. Making simple changes like not buying coffee every day or taking lunch from home instead of buying it, can leave more money to save.

Let’s look at investing money next.

Investing Money

While saving your money is certainly a safe money move, it is not the best way to grow your money. With extremely low interest rates and an economy that seems to be growing, the best option for anyone looking for financial growth is investing money.

Investing money is a broad term that can apply to a wide range of investment sectors. Investments can range from stocks and bonds, to real estate, to commodities and various other asset groups.  

So why should you invest money?

  • Investing wisely increases your monetary growth more than interest in a savings account
  • Creates security for your retirement
  • Improves your financial literacy

Here are a few key reasons as to why investing money is a sound personal finance option. 

Monetary Growth

As stated before, interest rates are currently very low. Some of the highest savings accounts are below 2%. Therefore, if you don’t want your money to slowly be eroded away by inflation, you need to invest.

SGBX Stocks Changes

By investing your money wisely, you can beat inflation and make significant gains in the capital value of your investment. Besides this, you may also gain a rate of return above the current bank deposit interest rates.

While the rate of return from investing can be variable and subject to market fluctuations, the rate of return from investing is generally better than saving, especially over the long term.

Investments are a longer-term and generally more profitable use of your money than are savings. 

Retirement

With Social Security slowly dying and pension plans virtually nonexistent, investing is the best way to go for those looking to have a good retirement. With options such as 401(k), those investing money into their retirement can benefit immensely.

Not only is it commonplace for an employer to match retirement contributions up to a certain point, but income put towards 401(k) can be pre-tax income. This is a win-win for anyone looking for a comfy retirement future.

Learn More About the Economy

Turning on the news and hearing all the jargon related to the economy and investing can seem intimidating. This is where investing isn’t just beneficial to your money, but to your knowledge as well.

As you continue to invest and research where you want your money to go, your knowledge of how the market works will increase. This is a great plus to anyone who wants to know more about how the economy is working and our country’s financial status.

Should You Save or Invest?

Both. You should start saving for the reasons mentioned above. Once you have secured those areas, it is a good idea to start investing for longterm gain. 

Saving your money and investing your money are the keys to successful personal finances. Learning how to wisely manage your money in those two areas will greatly improve your monetary wellbeing and future financial situation.

Author Financer.com

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Published: August 1, 2018
(Last Updated: June 28, 2020)