There is a vast difference between investing and saving money. Both have significant roles when balancing your checkbook and have different functions on your financial strategy.
Saving money is putting cash aside in banks or securities. This may include a savings or checkings account, treasury bills, or money markets. These cash reserves are available anytime when you need them. Many famous, wealthy investors have survived the Great Depression by keeping cash aside. As a general rule for savings, it must cover all your expenses, debts, mortgages, utility bills, clothing, food for at least six months. In this way, if you lose your job, you have sufficient money that could get you by to start fresh and adjust for a few months.
When investing money, you can use it as capital or buy an asset that has the probability to generate acceptable and safe returns after an amount of time. Investing your money can make you wealthier even if there is a chance to suffer volatility for years. Real investments are backed up by a margin of safety, and it may be in some form of asset or earnings. Productive assets are the best investments, and it can be in the form of stocks, bonds, or real estate.
How much should you save? Before investing, of course, you have to keep first. Saving money will provide the capital to start your investment. Just one tip, when you have invested your money, don’t sell them in the worst possible time – this is not a recipe for getting rich.
When saving money in the bank, it stays on your account for long periods, it gains interest, but taxes compensate it. Your savings of $20,000 5 years ago have lost value because inflation and the cost of living expenses have grown over time. Did you know this? Let us be clear of the Saving vs. Investing concept, so make you ready to build your wealth and gain financial independence. Remember, that sleeping cash (in your bank), will never generate returns for you. But then you invest money that you do not use, and it will generate a passive income. On the other hand, when you invest your money, it has chances of generating income in the long term. Save, or invest?