Understanding The Finance Market – Saving Money vs. Investing Money – Guest Post
As you strive on your journey to creating wealth and becoming financially secure, it is essential that you understand a few basics of the finance market. One of the important things you should know is that saving and investing are distinct financial words that you should not confuse. Although they are related, the two words refer to independent processes. A dedicated investor could find himself with several supermarkets spread across the major towns of the country but not able to pay his or her bills if he did not acknowledge the delicate balancing act between the two cornerstones of financial success.
Let’s start by differentiating between investing and saving.
Saving refers to the process of setting aside cold, hard cash for a particular purpose in the future. The purpose of saving varies from individual to individual, for example, one person may start saving to purchase a car while another may start saving to go to school. If you want to succeed in saving, it is important that you develop a plan and stick to it. For example, you can decide to be saving 10% of your income on a regular basis.
You should categorize the money you are saving into three groups: short-term goals, intermediate goals, and long-term goals. The money for short-term goals should be to take care of any emergency cases that may arise. The money for intermediate goals should take care of emergency cases as well as meeting your basic living expenses.
The money for short-term goals and for intermediate goals should be kept in an easily accessible savings account, as you never know when you may be in need of it. Once you’ve set aside some cash to meet your short-term and intermediate goals, you can start saving to realize your long-term goals such as building a new home or investing in assets like stocks or bonds.
Investing refers to the process of using money (called ‘capital’) to purchase an asset that you think will appreciate in value in the long-term and enable you achieve financial independence. An example of an investment is purchasing stocks and holding them for some time. As much as it can take time to materialize, investment is considered to be the best way of accumulating wealth.
Most financial experts advise people to start investing once they have saved a good amount. If you keep your money in a savings account, you will not earn any substantial interest. However, if you invest in purchasing an asset like stocks, you will earn a higher interest rate and build wealth much faster.
It is important to remember that any type of investment you engage in is risky because we are living in a world full of uncertainties. Nonetheless, this should not deter you from investing because in the long run, you will eventually reap the fruits of your labor.
Tips for saving money
- Stick to your established plan of saving. You may not be able to realize the fruits of your saving if you keep on breaking the rules. For example, if you had set to be saving 10% of your income on a monthly basis, you should not shift to saving 3% because you have seen a good car in the showroom that you need to buy.
- Save when doing purchases. You should always be on the lookout for places you can purchase your requirements at reduced costs. If you do this, you can get that you have remained with some cash to put in your saving box.
- Write a shopping list and stick to it. You should avoid falling into the temptation of buying anything because it has flashy banners. To avoid this, you should always make a list of the things you intend to buy and stick to it, regardless of the circumstances.
Tips for investing money
- You should always save first before investing. You should remember that it is your savings that will provide you with the capital for carrying out investments.
- Spread your risk. Instead of putting all your eggs in one basket, you should look at different avenues of investment to channel your money. For example, apart from investing in the stock market, you can also invest in the real estate industry. Doing this will cushion you during the proverbial rainy days when some of your investments are not performing well.
- Before throwing your hard-earned cash into any investment avenue, you should ensure you know the industry very well. Many investments fail to grow to maturation because their owners did not investigate the nature of the industry they intend to engage in. If you do not have adequate knowledge on a particular industry, you can consult an expert in that field to assist you. The point is, avoid investing blindly.
Shawn James has 7 years experience in the Financial Markets, for PRO Investment Bank in Australia as an Investment Analyst, before becoming a Forex trading expert. In addition, Shawn is the chief analyst and editor in pipstoday.com.