The importance of savings can be understood only when one succumbs to an immediate need for funds. As propagated by the popular financial tycoon, Warren Buffet, one must first save funds from his revenue and then plan to spend the remaining, instead of going the other way round. Savings act as a short term shield against sudden emergencies and fund requirements, which could be anything from meeting a medical emergency or a wedding.
How are savings different from Investment?
Savings are significantly different from an investment on many aspects. Savings should be made by keeping aside a sum of money from one’s monthly earnings, on a regular basis. Basically, a short term saving can help you meet immediate financial needs such as buying a car, arranging a wedding, planning a holiday trip or else, making a significant gift. Always bear in mind that savings are meant for meeting short term goals and hence, they should be parked in an investment which is less risky. Consequently, it will yield less returns but the investment will remain safe.
However, making an investment involves a large sum of money, which can be set aside in high yielding options that carry a significant amount of risk. This money is meant to meet your long term financial goals such as retirement and education of kids. Be prepared to earn higher returns on your investment as compared to savings.
What are the prerequisites to save and invest?
Saving and investing are crucial financial decisions that demand major consideration and thought. They cannot, and ideally, should not, be made overnight but given some thought and analysis, to identify which proposals hold maximum potential in terms of returns and growth. Thus, before you actually invest your money in some option, make sure that you have enough funds to meet your expenses at least for a minimum of six months. This fund will hedge you against unexpected loss of income or loss in business.
Whether to save or invest?
It can be a little tricky to understand which financial goals require savings and which require investment. Let us take a look at some common financial decisions which could need your consideration:
- You are planning to buy a new car as your old one is likely to be unusable in the next one year ~ Save
- In the next three years, you are planning to start a family and move into your own home ~ Save
- Marriage expenses of your child when he is still 15 years away from marriage ~ Invest but the same would recommended as a saving in case your child is older and likely to get married soon.
- You plan to retire in the next 25 – 30 years ~ Save
Any intelligent person should be cleverly make a distinction between the idea of savings and investment and understand that the former serves as the ladder to reach the ideal investment. Without making this crucial distinction, there is a chance that you may end up putting your money at the wrong place, for the wrong reasons, with wrong expectations. Be an intelligent investor and know your funds better! Beeline Wealth is a popular financial advisory service, which can help you choose the best course towards savings and investments. Connect with them today to know what is best for your portfolio.