Having surplus money is, let’s face it, a very nice problem to have. But making the right decision on what to do with it can be a little difficult.
There is no wrong answer to this, unless you blow your savings on a needless impulse buy that never gets used, with saving or investing both worthwhile methods in which to use your hard-earned cash.
The decision of whether to save or invest can cause plenty of debate, and for the most part it comes down to both your financial situation, how risk averse you are and, ultimately, finding the right opportunities.
So what should you do? Here’s all you need to know about saving versus investing…
What’s the difference between Saving & Investing?
The differences between saving and investing are pretty obvious, with one involving keeping your money close, and the other handing over your cash and hoping to see a return.
Saving is simply a process in which you put money aside, usually into a bank account or ISA and letting the money stew and gain interest until you need it, whether that be for a new boiler, wedding, holiday or simply a rainy day.
Investing is higher risk but can turn your savings into a profitable journey. You generally look to invest in something that will grow in value and provide you with a return further down the line.
There are many ways in which you can do this, with brokerages among the most popular methods. Using one to invest in stocks and shares make investing easy and there are many out there for you to use. Questrade is one of the more popular online and is Canada’s fastest growing currently.
Questrade fees are low, so it’s perfect for novice investors and those beginning their investing careers.
Save vs Invest?
But when should you save and when should you invest?
There is a time for both and it all depends on your situation and what’s out there to invest in.
When You Should Save
Coming into money is great, but it doesn’t mean you should automatically look to invest. Whether you’re looking to invest or not you should always have a good amount of savings before you start.
An emergency savings fund is always a good idea and you should look to save at least 10% of your paycheck each month if possible, with many advisors even suggesting 20%.
Of course, if you have something you need to purchase or save for, for example a house, it’s also worth saving rather than relying upon investments to see a return and pay out for you.
When You Should Invest
The time needs to be right to invest, but when you do you really can see fantastic returns.
It’s recommended you have a good amount of savings before you do and recognise what you want to achieve from your investments.
Understand whether you’re looking for long term or short term rewards. If the answer is long term, then an investment could be ideal for you.
Naturally inflation can make your investments fluctuate, so waiting for the right time to cash in on your return can be a longer project.
You’ll generally see better rewards with investments as most savings accounts will give you interest of just 0.08% in the first year. That may rise over time, but it’s unlikely it would ever go above 3%. Which isn’t an awful lot, particularly compared to what you can earn investing.
You can earn as much as 7% per year if you choose the right investment. The way to do that is firstly pick up expert advice, whether that be through a brokerage or the blogs and advice columns that dominate the web. There are many success stories out there and the next one really could be you.
Look at which industries are thriving currently and what might be the next big thing. Find a brand you can trust and believe in and you could see massive rewards.
Of course, investing isn’t without its risks and they’re well worth taking note of. If you’re not willing to sit on money before it starts profiting, then it’s probably not the move for you and there really is no guarantee your investments will even see a return.
When they do however, and with the right knowledge they will, it really is a no brainer when it comes to long term accumulation.