Have you ever thought which is better? Investing or saving? It doesn’t matter whether you’ve been working on your finances for years or even you’re just getting started, it can be just difficult to know when you should be saving and when you should be investing. The fact is that ultimately, it’s up to you to decide whether saving or investing is the better choice to reach your financial goals. Therefore for certain goals, one is better than the other. Free Financial Advisory Portal, MoneyMindz.com discusses about these important topics of investing and saving in order to secure your future.
Saving can be termed as a safer route as the amount in your bank account won’t certainly decrease unless you withdraw funds, but interest rates on savings accounts don’t allow your money to grow very quickly. As a result interest rates are often lower than the rate of inflation. It means your savings could lose purchasing power over time.
Well it’s typically tempting to want to invest to receive higher returns and also beat inflation. The value of your investment won’t always go up. In few cases, investments can become completely worthless. Now how do you know when you should stick to the safer route and save or risk more to earn bigger returns and invest? This is what you need to know:
Pros of saving:
There are various benefits to saving rather than investing. First and foremost, the amount you save in a savings account won’t decrease over time as long as you don’t make withdrawals. It is important because some goals need to happen regardless of whether investment prices are up or down.
Rather than investing, saving also allows you to reach your goal on time as long as you save the proper amount each month. Thereafter, take the total you need to save and divide it by the number of months until you need to reach your goal to find the amount you need to save each month.
Cons of savings:
You need to know that saving does have downsides though. As a result of inflation, the money you save will decrease in value each year. If a person earns interest, that interest may partially offset the negative effect of inflation. Interest rates rarely keep up with the rate of inflation.
There is also one more meaning to saving i.e. you’ll have to set aside more money each month than you would if you received higher returns investing. If a person is only earning one percent interest in a savings account but could earn an eight percent return investing, he/she will have to make up for that seven percent difference by putting more money in your savings account to reach your goal at the same time.
Pros of investing:
Investing can be really beneficial. It gives your money the potential to grow faster than it could in a savings account. One thing to remember is that if you have a long time until you need to meet your goal, your returns will compound. This means in addition to a higher rate of return on investments, your investment earnings will also earn money over time.
You should know that the benefit of higher compounding returns is you won’t have to invest as much each month as you would need to save each month to reach your goal.
Cons of investing:
But investing always isn’t a good thing. Sometimes investment prices could go down right before you need the money which could leave you in a financial bind. If possibly this happens, you will have to either settle for an option that doesn’t cost as much, delay your goal until you can save more money or delay your goal until your investments increase in value.
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