Surprisingly, not everyone realizes that saving and investing money are two totally different financial strategies. Obviously, both have certain pros and cons, so we are going to take a closer look at each aspect.
Saving money means literally saving the actual value of the money you have. You may just store your cash (which is, of course, the least reasonable decision), or you may put your money on a bank account (savings account). Taking into consideration the yearly inflation rate, the interest you get on your savings could be “eaten” away by inflation. Still, at least, you will not lose the certain percent of your savings’ value, as the yearly interest will compensate the devaluation.
On the other hand, investing could increase your income significantly and make you financially secure and even wealthy by the time you are retired. Although, you will not be able to withdraw the money in case you will need it, you will know money is working. Anyway, if you are up to making some wise investments – find out what way of investing money would match your needs the best.
So, before making a big decision about investing – make sure you know all the pros and cons.
A savings account is, probably, the most traditional way to take care of your money. Indeed, saving money is a great way to keep your assets intact, having no risk of losing them. It’s reliable, it’s steady and it is predictable. You don’t have to have any specific knowledge. You have your full peace of mind without any fears or worrying.
You can withdraw the money from the account in case you will need them. Depending on the terms of your savings account Agreement, you may lose a certain percent of the interest, but still, your money is always available for withdrawal.
You may eventually lose some money if the inflation rate exceeds the interest rate of your savings bank account. You can not influence or vary the pace of your savings’ growth in any way.
When you have a savings account you stop monitoring the market for good investment opportunities so you may miss a really good one.
Investing is an active approach towards managing your financial situation. Basically, investing is the only way how wealthy people become that rich.
You may earn some additional income or multiply your money few times, depending on what type of investments you choose.
Risk, risk, and risk. Needless to say, but for the opportunity to earn more you will always pay with the risk of losing some money.
If you invest into, let’s say property – the market prices may plummet and you will lose a certain part of your money. If you invest into high-volatile assets, like foreign exchange market, you may lose everything at all!
Still, the most annoying drawback of investing is that money involved into the investment project is not available. Besides, there is always a risk of unprofessional (or even illegal) behavior of the individual or institution you have trusted your money (especially when it comes to the stock market or forex trading).
Ways to save the money
- You may just drop your money in safe deposit box you can find in any bank you prefer. Advantages are
obvious – you have full access to your money at any time. Cons are plain as well – your money doesn’t
grow, and, given the inflation, you lose every year a certain percentage of your savings.
- Open a special savings bank account. It’s really easy to maintain, besides, you will have an access to your
money without limitations. Regular savings accounts offer very small interest rate which is usually about
0,1%. Still, it’s better than nothing.
There are several types of savings accounts:
- Regular Saving Accounts (easy sign-up, simple maintenance procedures)
- Money Market Accounts (highly-liquid accounts, insured by FDIC)
- Certificates of Deposits (account with the interest rate, where interest is paid regularly to the account holder)
- Automatic Saving Plans (automatic money transferring (certain %) from regular checking account to automatic saving plans account). It helps to save money if the holder has a tendency to spend more than he wishes to, so account becomes an effective tool of personal financial discipline.
Ways to invest the money
- Stocks. You buy stocks, based on the expectation those stocks will go up in price. That could be long- or short-
term investment. Beware of putting all money into one certain type of stocks.
Read more about risks of investing in the stock market.
- Bonds. Fixed-income equities for people who prefer lower but stable growth of their money over risky and fast income. Bonds may become a key element of your diverse investment portfolio – the core which brings guaranteed income.
- Mutual Funds. Mutual funds let you acquire serious assets (usually equities) even if you have a small amount of money. Mutual funds let participants consolidate their money in order to buy a stock portfolio and share the profit from the mutual investments.
- Real estate, Property. Investing in property is a trending way to make your money work and grow. You buy property in order to rent it out or sell it later, when the market goes up.
- Gold, precious metals. Gold and other precious metals (silver, platinum) is a relatively safe way on investing money, as when the global crisis kicks in, gold always goes up.
- Start-ups. You invest into the newly appeared on the market company, which has a great commercial potential. The risks are massive, but the success could also surpass all your expectations. A little company may explode into the billion-dollar business within a year.
- Bitcoins. It’s an investment into the electronic currency which price could rise of fall, depending on several factors. Many people consider bitcoins as an investment field with high potential. The other side of it – it’s risky, as this digital currency is under no control or official regulations.
- Alternative investments. Futures, options, other “non-classical” financial tools, which are purposed to balance the whole investment portfolio. You can choose actually anything which is out of regular investment list.
It is always better to keep the healthy balance of risk and safety when it comes to money. If making significant income is not the priority for you, then put 80% of the money on a savings account and invest other 20% into something which potentially brings high returns. The modern world offers plenty opportunities for high-profitable investments, starting from 1 thousand dollars!