What is Saving and Investing?
Saving
Putting money aside for a later date in time. You may save towards a future goal, such as a vacation, or for an unexpected expense like car repairs. Savings accounts held by financial institutions, such as banks, typically allow you to earn ever more money through interest.
Investing
Investing is similar to saving in that you are putting money away for future use. The main difference between the two accounts is that investment accounts typically yield a higher return than a regular savings account. However, to get that higher return there is typically more risk involved.
Why should I save?
Savings is important because we never know when an unexpected event or emergency will come up. Unexpected life events, such as vehicle repairs, medical emergencies or job loss, can turn into heavy financial burdens if money is not saved. Savings allows you to have some breathing room when these unexpected events pop up.
Saving can also help with purchasing expensive items that you may not be able to afford right away. Instead of charging a new laptop to a credit card, you can set aside money over time to make the purchase without going into debt.
Why should I invest?
Investing creates wealth for your future. You'll use investments to pay for your retirement, your child's college education or other long term goals. With investing, money is put into assets that have risk attached. The common investment choices are stocks, bonds, real estate and mutual funds. Even though these assets have risk associated with them, they have the potential for high reward. If you invest at a young age, for a longer period of time, your potential for risk lowers.
Why is saving important?
Money should be put away for unexpected events and emergencies because we don't know for certain what will happen in the future. You may need to make costly repairs to your vehicle, have a leak in your house, or need to go to the hospital without warning. These unexpected life events can turn into heavy financial burdens if money is not saved. Savings allows you to become financially secure so as not to be thrown off by life's unexpectedness.
Saving can also be used to purchase expensive items that you may not be able to afford right away. Rather than charge a new laptop to a credit card, setting aside money over time will allow you to make a purchase without incurring debt.
Using higher yield investment accounts for long term use, such as retirement is very important. At a young age it's easy to put off thinking about retirements, however the earlier you start the more money you will have in the future.
How much should I save?
A good saving goal is to be saving at least 10-20% of your net income. Many financial advisers recommend saving six months worth of expenses in order to be financially secure. While 10-20% is recommended, whatever you set aside is a good start. Your goal should be to pay yourself first by including saving as a category in your monthly budget.
How should I start saving?
While throwing spare change into a jar, or putting a dollar a day in a coffee can is good for short-term savings, banks and other financial institutions offer easy and secure services to assist you with saving money that will benefit you in the long-term. Do a little research to see what type of accounts are most in-line with achieving your financial goals. Most financial institutions have advisers available at no cost to answer your questions and point you in the right direction.