Savings vs. Investment: Which Should I Choose?

When you were a child, do you recall hearing from your parents the classic story about ants storing food crumbs for rainy days? When you were younger, you already understood to set aside money from your allowance in case you needed supplies for an art project or simply felt like treating yourself to ice cream.

However, as you became older, your perspective shifted. The old expression about the ants is still accurate, but saving is insufficient. Make your money work for you by investing and generating passive income if you want to increase your wealth!
It makes sense that people who are new to personal finance and investing believe saving and investing are the same. Savings and investing, on the other hand, are two distinct ideas. Planning your financial future will be much easier if you comprehend both.

Key Similarities and Differences

In its simplest form, saving is the practice of setting money aside for expenses, unforeseen costs, and emergencies. Savings provide you the ability to be prepared for everything life may throw at you because you may rapidly remove money from your bank account.

Additionally, you can use your savings to achieve long-term objectives like paying for a down payment on a home, starting a small business, financing important life events like weddings and pregnancies, schooling, and retirement. Savings don’t pose any danger unless you mismanage the funds.
Setting money away for the future is another aspect of investing. It’s still unique, though, because you’re investing in things that potentially increase in value, including stocks, bonds, mutual funds, dollar accounts, and real estate.

It will take time for your investments to pay off but think of it as planting a seed and waiting for it to grow into a tree. Additionally, you will occasionally need to deal with some risks.

Like saving, investments are intended to generate returns or profits for long-term goals including retirement, company funding, your child’s college tuition, and inflation insurance.

What are the main benefits and downside of saving?

Saving has a lot of advantages. One benefit is that you always have easy access to a cash reserve. Saving up is a more practical choice if you want to accomplish a short-term objective within a set period, such as traveling to Japan next year or purchasing an expensive handbag within the next six months.

There are drawbacks to this, though. Your money loses value due to inflation. The bank may offer interest rates, but these meager sums are insufficient to combat inflation.

What are the main benefits and downside of investing?

Your healthy financial lifestyle should include investing since it gives your money the possibility to grow more than it could through savings. If the economy is doing well, you can anticipate excellent profits.

There are hazards, nevertheless, including those related to regional and worldwide economic activity, the effectiveness of the fund managers or brokers, and the standing of the organizations or businesses you invested in. These have an impact on bond, mutual fund, and stock prices. You could experience losses.

This is concerning, especially if you are an active trader or someone who only seeks immediate gains. However, you can rely on asset management companies in the Philippines that can help you in managing your investment portfolios.

The Hard Question: Should I Save or Invest?

The dilemma is whether to invest or save money. The solution is fairly simple. All you need to do is comprehend the nature of your objectives and their time frames. Investing might not be the greatest choice if your objective is to save for a down payment on a home, pay for graduate school, or finance your wedding within the next three to five years.

This is due to the possibility of financial loss. Maintain your funds in places with little to no danger, such bank accounts. However, investing in high yield but risky assets like equities and mutual funds may be worthwhile if you want to have plenty of money to travel the world by the time, you’re 60.

How Much Should I Invest or Save?

Savings should always come first because it is the cornerstone of your financial wellness. Most of the time, your funds will be used to fund your investments. As a rule, you should have enough funds to pay for your personal expenses, including your mortgage, food, utilities, and insurance.
You should put money aside for an emergency fund that is at least six months’ worth of your salary. You have enough through this if you lose your work, or your family unexpectedly needs financial assistance. Get health insurance to further protect yourself.

Investments only come into play when you’ve saved enough money. You ought to be ok with the possibility of losing the money you invested. Try to set away as little as $1,000 for investing if you’re just experimenting. Once you’ve gotten the hang of investing, gradually increase it.

Where Can I Invest My Money?

You might be considering where to invest your money now that we’ve discussed the concept of investments vs. saves. There are various investing firms from which to choose, but you must first comprehend what they offer. Here are some of the most fundamental investing options you might wish to look into:

• Stocks. A stock is a type of corporate ownership. When you purchase stock, you become a shareholder in the company.
  Either sell it to generate money or wait for its worth to increase over the next years. You can also make money through receiving dividends, which are payments made by businesses to their shareholders in the form of money or gifts.
• Mutual Funds. A collective sum of money gathered from contributory investors is referred to as a mutual fund. The money will subsequently be invested by a fund manager in a variety of securities, including stocks, bonds, and other types of equity. Mutual funds can be purchased through asset management companies in the Philippines.
• Bonds. Bonds are a type of investment where you lend money for a set length of time to a business or the government. Because of the set interest rate, you can profit. You’ll receive your money back when the bond matures.

Choose Now and Choose Wisely!

Even while there are some overlaps, keep in mind that investments and savings are two separate things. Both are necessary for creating a lifestyle that is financially sound and help you achieve personal financial goals.

Consider your level of risk tolerance and the nature of your objectives. You can use this to decide whether to invest or save.