Invest or Save? What Should I Do With My Money
Sometimes in life, people get lucky. Often, this luck involves money, which has the potential to bring about significant change. Such gains might be cash from an inheritance, financial reward, or the most common, the fruit of hard work.
Many things can be done with excess money. Having something to spend without the worry of becoming broke may tempt people to splurge on things they want, donate to the needy, or spend it freely without care.
With excess cash, people have the option to purchase more than what they need. While it is gratifying to do so, it is important to have a plan to optimize finances.
When choosing between putting cash out of the market or keeping cash liquid, the latter can help ensure the safety of a cash value and allow people to be ready in case of emergencies that might occur later on.
For people with extra cash, they can either choose to save or invest. Both terms are consistently interchanged: however, they are very different from each other. Are you having a hard time choosing between the two? The answer depends on a person’s financial situation and the plans you have in store for your future.
Below are some guidelines on how to go about optimizing your finances.
What is the Difference Between Saving and Investing?
- Saving – is either not spending money or deferring consumption. People usually save money to pay for future expenses, a holiday trip, or preparing for an emergency. People can save by putting money into a savings account, cutting down expenses, or storing it someplace safe.
- Investing – means putting aside some of your money to allow it to grow over time. It can also mean buying things that have the potential to increase value, such as investing in stocks, shares, and property.
The need for saving
Following the necessities such as food, shelter, and clothing, money is the most necessary thing crucial for survival. People must make ends meet ends to satisfy their needs and wants.
Setting up an emergency fund
The threat of future crises and emergencies increases the need to save for the uncertain future. Such troubles often lead to debt and financial stress. Hence, saving cannot be understated. With enough money saved, people can ensure the fruition of their later plans.
For added benefits
Failure to plan finances may result in consequences that can negatively affect you and your loved ones. Insurance products can provide benefits for your financial plan. An example would be purchasing health insurance Philippines, as it allows people to get treated for illnesses or accidents without withdrawing a significant amount of money.
Considerations for Savings Account
- Emergency Funds
- Cash deposits (e.g., car or house)
- Saving for a vacation or a holiday, appliances, or a house
- Short-term education costs
Investing is essential for financial security, allowing you to grow your wealth and generate additional income. It is useful for supplementing income, saving up for retirement, paying loans, and purchasing other assets like car insurance ph.
Many hesitate to invest because there is risk involved. However, it is the risk that makes your earnings profitable. As the risks in investing rise, investors seek higher returns as compensation for taking such risks.
Examples of such risks are liquidity, business, and inflation.
Considerations for Investment
- Paying for education, such as high school and university costs
- Preparing for retirement
- Building wealth
Insurance as an Investment
When it comes to investing, many overlook insurance as a viable option. An example would be purchasing health insurance ph. Today, there are multiple benefits and flexibility in insurance policies, and if you have yet to be insured, you could be missing out.
Both saving and investing is vital for financial security and comes with respective pros and cons. Deciding where to allocate or put your money depends on your needs.
The difference between saving and investing is the risk involved. Investing allows you to earn a higher return: however, it has the risk of loss. If you want to put away money for later use with a higher return, perhaps two to three years, then investing is right for you.
On the other hand, saving involves no risk, and the return is relatively low. It is a viable option for people who want to access cash for immediate use.
Whether growing your wealth, saving for future setbacks, or leaving a financial legacy, knowing the difference between them will help you choose what is best for you and your family.
More useful reads from iChoose.ph