Many young adults who start earning money are often advised to either make savings or invest. However, before doing so, it is important for them to understand the basics of these two essential processes. Moreover, an important question arises here – is it ideal for a beginner to start saving or investing, or to do both together? In this article, we will answer this question by outlining the features of the article.
Whether you’ve been working on your finances for years or you’ve just started, it can be hard to know when you should be saving and when you should be investing.
Savings is comparatively a safer route, because the rupees amount on your bank account won’t normally reduce unless you withdraw funds, but interest rates on savings accounts don’t allow your money to grow very quickly. Unfortunately, interest rates are often lower than inflation. This means that your savings may lose purchasing power over time.
It’s always tempting for all of us to want to invest in order to get higher returns and to beat inflation. Unfortunately, the value of your investment is not always going to rise. In some cases, investment can become completely worthless.
So, how do you know when you’re supposed to stick to a safer route and save or risk more to earn higher returns and invest?
Pros & Cons of Savings:
- Savings usually remain unaffected by any economic event. Since they do not fluctuate in value, we can achieve our goals by a set timeline and a fixed amount.
- Savings are the key primary step of investment. If you don’t save, you’re not going to have anything to invest in.
- Savings can help us to set goals in the most disciplined way possible.
- Most savings plans do offer interest rates, but they are not high enough to beat the inflation rate.
- The purchasing power of our money can fall over time due to inflation. Therefore, saving is best suited to short-term objectives only.
- You’ve got to save a big corpus of money to achieve big goals, because your money isn’t going to grow over time.
When You Should Save?
Saving rather than investing also allows you to achieve your goal on time as long as you save the right amount each month. Take the total amount you need to save and divide it by the number of months until you have reached your goal to find the amount you need to save each month.
Pros & Cons of Investing:
- Investing will help you beat the inflation with a unique feature known as wealth compounding. Simply put, the earlier we invest, the more our profits will multiply with the passage of time.
- Because of faster growth rate, we’re not going to have to set aside as much money for a goal at the moment, compared to simply saving money.
- Investment helps us overcome inflationary pressures. Indeed, investing in the equity segment can often make money grow at such a high rate that it beats inflation in the future.
- Investments are affected by a wide range of factors, such as economic events, company outcomes, etc. In order to be successful, one must study all the relevant factors.
- Investing returns come at the expense of proportionate risks. Any form of investment does not guarantee returns.
- Investing requires very good knowledge, some basic analytical skills and patience. It takes intensive practice to become a skillful investor.
When You Should Invest?
Investment gives your money the potential to grow faster than you could in a savings account. If you have a long time to meet your goal, your returns will increase. Basically, this means that, in addition to a higher rate of return on investment, your investment earnings will also make money over time. Investing wisely into the share market can get maximum returns on your investment. If you are just starting out you can also join online share market classes to learn about stock market and achieve your goals faster.