New employees with recurring earnings quickly come up with this question. “Should the extra money I earn be saved or invested?” While saving money may sound boring, investing it requires an extra amount of care. To help you make your choice on whether to invest or save money, in this article, we’ve listed the perks and snags for both.
Saving money is selecting a portion of your earnings to set aside. As you may know from our website and product, at Finnt we are big fans of savings! However, for the sake of this article, we’ll try to be as objective as possible.
Saving money can literally be life saving. This is the one and utmost reason why savings matter. While we love living as optimists, life accidents happen. This can be an actual accident, an illness, a layoff, a debt… You never know what can happen to you or your loved ones. Therefore having money aside is a great way, if not to avoid a tragedy, at least to undermine it.
The second perk of saving is that savings are actually useful to achieve a goal or a project. While we could consider “starting a business” as an investment, some businesses can only be started after saving a certain amount of money. Other projects where saving money presents itself to be useful are marriage, buying a car, a house or going on a trip!
While we often associate earning money with investing money, saving money doesn’t stagnate either. Sure, rewards might be less interesting than certain investments. However, savings to insure a safe and stable return, which, over the years, enables you to build a certain amount of wealth. This is due to the power of compounding interests.
We can’t hide the first and evident first downfall of saving money which is: inflation. Indeed, while you still earn interests on your savings, inflation generally runs higher than those rates. Consequently, you do lose a small portion of your money over time. Somehow, this is the price of stagnating money.
Another snag we can list here is that, depending on the savings scheme you select, you might not be able to withdraw your money before term. Long-scheme savings plans can last decades.
Meaning, and this leads us to our last point, other institutions will be investing these savings instead of you. Thus, making more money with your money, which can be a little frustrating.
What We Recommend
In our opinion, saving money should not even be a question. Everyone, from a young age, should have basic knowledge of compounding interests, and have implemented smart saving habits. As stated earlier, savings can be life saving and for this reason only, they should not be disregarded.
On the other hand, if what you are looking for are high returns, you might want to explore investing options. However, remember to not minimize the power of slowly building wealth over time.
Investing money is actively spending money on a financial opportunity in hopes to withdraw more money from it later. Investing can cause partial or entire loss of funds. This article does not serve as a financial advise, but rather as an informative piece.
The utmost incentive for anyone who starts investing their money is, indeed, a faster road to access financial freedom and independence. While savings through compounding interests do ultimately provide this financial stability, successful investments are said to shorter the route. And it is true: if you make the right investments, you will earn significant rewards on them.
Secondly, investments can be very liquid. Indeed, it is not the case for all of them, but the ones with the higher, short-term returns are extremely liquid. This enables you to move your funds pretty fast and easily (as long as you pay the taxes that come along these fund transfers, but that’s another story).
Last, investing clearly enables you to earn more money with your money. Instead of letting a third party manage your funds, you are the one deciding for yourself. Bearing the responsibility also allows you to take advantage of the freedom that goes with it. For the more free-spirited, this is an undeniable perk.
As you may know, the higher the high, the lower the low. The largest snag of investments clearly lies in the fact that you can lose it all in no time. Depending on the types of investments, your money can leave as fast as it arrived. And the psychological shock of losing it all should not be overlooked.
While we did mention liquidity earlier, some investments such as real estate, do require some time for the money to be accessible. Indeed, you can withdraw stocks within minutes, but selling a property might take a few months. So if you need the money immediately, be sure to have some extra saved somewhere easily accessible.
Finally, as incredible as the financial opportunities may be, they must all be taken with great caution. Especially, when you do not know the field in which they operate. While we tend to portray investments as easy transactions, they often require weeks, months or even years of study to truly understand the dos and don’ts.
What We Recommend
At Finnt, we will always recommend you to be as safe as possible with your investments. Be sure to divide the money you want to invest so as to not put all your eggs in the same basket. Plus, try to learn as much as you can from the field you want to pursue.
Try to ask and follow the right people to not get mislead in your enterprise. And, remember: the best investment will always be yourself.
We hope this article was helpful! If so, don’t forget to share it around or you can even join us on the Finnt App to start saving actively. Let’s go!