When you have money in your hand, your mind gives you two options – whether to save it for future purposes or to invest it in a venture which is promising enough for you to reap future rewards and gain bonuses apart from your necessary future expenses.
At times there is a possibility to strike balance and choose between the two. This is primarily because of your circumstances, the way you look at your earnings, people you need to look after with the money you earn and the economic situation of the country you are living in.
Below you will find tips to choose between savings and investment, depending on the situations mentioned above. However, before we get down to the actual tips, let me first explain to you some basics of both savings and investment.
The Basics of Saving
Saving could be defined as not spending the income earned or not consuming from the particular amount of money with a thought of keeping the amount safe for future purposes. Saving can also be described as a plan to save your future in case of an economical crisis¸ or financial trouble.
This saving of money can buy you your necessities in the time of your dire need. Saving in a way is a future investment. But unlike investing, it is immune to all risks. It is cutting down expenditures to deposit money for long-term security.
The Basics of Investing
Investing is a smarter yet a risky way of saving money. Investing can be defined as spending a small amount of money on current expenses and saving the rest for future expenses, but not idly. Unlike saving, you may invest the money in a particular prospect to get profitable returns in the future.
It is a good option to invest money if you want your resources that are idle to earn returns for you without you even touching it. Another good reason to invest is to meet the challenges of inflation.
For Individuals with High and Low Earning
If you’re earning $5000 per month and are independent or single, you can afford to take more risks by investing in profitable ventures. However, if you’re earning less than $2000, then you should rather focus on saving some money by cutting your expenses, then after you’ve saved a considerable amount of money, you can perhaps start micro investments.
Now, what do I mean by considerable amount of money? Well, I mean, money enough to help you sustain for at least 6 months with all your basics necessities such as food, shelter, clothing, mortgage, student loans if any, etc. being fulfilled.
With this, even if you don’t get expected returns from your investments, you will still have a strong support of your savings for a good period of time. If your investments reap good returns, then you can divide the profits between saving and further investments.
For Families with High and Low Earning
If you are in charge of a family, say, of more than three members, you need to look at the necessities of the present while also keeping an eye at the possible circumstances of the future. This means, the basic thing you need to do is meet your family’s basic requirements¸ requirements without which your health and living might be affected.
But then again, there is a difference. If you’re an average family, growing your income is absolutely important because with time, expenses of each member would also increase. However, there must be a balance between your investment and your current expenditure and standard of living that you maintain.
If you are a family of two or a family with a single child with low income, you can possibly save more and spend less. You can save it for total investment on your child’s upbringing or you can invest partial income in a business venture that is legitimate after saving a considerable amount of income.
What’s More Important – Saving OR Investing?
Your choice depends on factors like the number of members in your family, the age of your child, if you’re single, and your income. But most importantly, it depends on your decision¸ willingness to take a risk by investing and reap bonuses from the future or to act with caution, save and reinforce the future. Savings and Investments sometimes merge but it is always wise to choose savings over investment on most of the occasions.
What do you think is more important? Have you ever faced the same dilemma in your life? Do let us know your views in the comment below.
Both are important and in truth investing is a form of saving. I think it’s like you said, in the beginning it is important to focus on saving in order to build up a cushion to protect yourself from Mr. Murphy. Once you have a suitable cushion of savings you need to begin investing to foster the wealth creation process. It’s always better to let your money work for you rather than working for your money.
You couldn’t have said it better my friend! I’m high on generating income to make money work for you and investing is saving. As long as you live by Buffett’s rule – “Don’t lose money”
when i first expressed interest in investing, my mentor asked me, “can you afford to lose this money that your going to ‘invest with’?” my response, “nope, can’t lose it.” then he replied, “you’re a saver, not yet an investor.” very important difference. growth and risk are often inversely proportional. he explained that investing naturally has risk and that what goes up can come down. now, he wasn’t referring to cd’s or a money market account. those are savings vehicles. but all of the inflation beating growth vehicles, whether it be the stocks, bonds, or start-ups, all have risk. he then handed me a book, The Richest Man in Babylon, and instructed me to read first. In reading, he hoped that I would follow the principles of the book and build a savings fund first. only after i had proper savings, i could start to invest. so, ditto to Money Infant’s comment.
my last point to add… savings helps you avoid debt. only investing (proper investing) has the potential to make you rich. i would conclude that you need both throughout your life.
Tyler-
Absolutely, investing has so much risk and that alone is what scares people away from possible profits. However, I do believe in what you guys have said about building the savings back bone first. But a lot of factors do have to deal with being single or married with children. It’s sad really, that too many families out there have absolutely no savings and therefore, are not able to invest (besides maybe 401k contribution). The thing is, too many people spend,spend, spend in their 20’s…and ends up biting them in the rear in the long run.