Without a doubt, saving is a fundamental aspect of our financial lives. If you want your earnings to go further, you first need to save. However, saving by itself is a futile attempt to grow your money; at some point, it becomes a choice between being stuck midway through your goal, or taking the next step that is, making investments.
Of course, the latter would mean taking risks, and not all risks pay off in the end. That, however, is all part of it; sometimes, you have to lose some to gain more.
When You Should Save and When You Should Invest Your Money
In case you are not convinced why let us give you a few reasons why just keeping all your money and savings in your bank accounts is not exactly a great idea:
1. Because your savings won't grow on their own.
Let's state the obvious: the money hoarded in your piggy banks or bank accounts will not multiply by themselves. So once you have saved enough, the next step should be investing. Of course, not everyone makes the right investment.
Not all of us is fortunate enough to make the wise investment at first try; sometimes, it would take you a few failed attempts. The point, however, is not to give up and to learn from your failures to make better decisions next time.
Many fear the advice "make investments," mainly because it dealing with stocks is mostly associated with it. This, however, is a common misconception; investments come in many forms, not just in stocks.
Education is one, and it is one that no one can take from you.
The properties you own and the different insurances you pay for are also investments. Of course, you can also consider mutual funds or start your own business.
2. Because you have to think long term when purchasing.
Speaking of investments, the things you purchase are also investments of some sort. Just how good of an investment they are depends on their quality, durability, longevity, warranty, etc. relative to their price.
That is why, when you go shopping, going for the cheapest ones is not always a bright idea. Remember this when you go shopping for things that are expensive in the first place such as furniture and electronics.
We are not saying that expensive, high-end items are always the best; we are simply saying that in some cases, the cheapest are not always the best, reliable options.
Thanks to the Internet, comparing different products/services from competing brands and reading reviews are easier to do today.
3. Because of that thing called inflation.
Your savings might be safely kept in the banks and your cookie jars, but they are not safe from the ever-changing value of money. Currencies depreciate, and the value of the money left uninvested go down with them. Naturally, this also means less purchasing power.
Not to scare you from saving, but just imagine the worst case scenario of the currency of your savings dropping dramatically. Picture your $500 turning into $300; that is already $200 worth of losses, almost half of the total. Saving alone does not seem exactly stable and safe now, does it?
No one is encouraging you to splurge all your savings and money on your every whim. However, treating yourself once in awhile is not only good way to rest, unwind, and destress; giving yourself a break from work, careful budgeting, and thrifty spending can also offer experiences that will not only help you out regarding motivation and psychological balance but your growth as an individual.
Remember, life is not just composed of your job. You also have to attend to the other aspects of it and to keep a balance.
After all these, you might start thinking that you should stop saving altogether. Do not get the wrong idea; saving is important, and we all need to do it especially at first. The point is that you need to know when to stop saving and when to start investing.
To help you out, let this checklist remind you of the things you should save for as well as some instances wherein you will also need to do it.:
1. Emergency Savings
Everyone needs to have emergency funds, and many financial advisors suggest having at least enough to live off it for 6 months. Once you secure sufficient amount for at least, that's one thing to cross out your checklist. Do note that having them is even more crucial in case you are about to be unemployed and/or will not be working for a while.
How much you will need for emergency savings would depend on your circumstance. Singles would usually need less, and it so follows that those with families will need a lot more, about the number of family members (especially dependent members). If you are the head of the family, or the main or sole provider, it's another reason to put emergency savings up your priority list.
2. Retirement Savings
Like emergency, this is also another important item on this checklist. If you want to ensure a comfortable life for the future you, then make this one of your priorities, especially while you are young, at the height of your career, and/or earning big.