Savings and investing are two different concepts, but in practice, they are closely related to each other. Typically, we save first before we invest. Savings is setting money aside for use at a later time. Investing is using a resource (usually money) with the expectation that it will generate increased income or grow in value.
Think about why savings could be important in your life. Putting aside money for future use can help you meet life goals. Saving money for emergencies, short-term goals and long-term goals are all important.
What happens in an emergency?
Did you know that 4 in 10 adults, faced with an unexpected expense of $400 would either not be able to handle it or would need to borrow the money or sell something to cover the expense? Think about what an emergency might be in your life. If that occurred, would you be able to pay for it? If not, now is the time to make a plan to begin saving for that emergency.
Sometimes, it’s hard to imagine where you might find money to save. Start by taking a look at your spending and saving plan. You may decide to prioritize your spending differently, cut current expenses, find additional income, save gift money, bonuses, income tax refunds, or something else, depending upon your goals.
Make a plan and stick to it.
There are many different ways to save money to meet your needs and goals. Some examples would include automatic saving, saving coins, banking savings on coupons or refunds. Just think about what works best for you. One suggestion is, that when you receive money, “pay yourself first," as a way to plan ahead to save money over time. When you pay yourself first, you put an amount of money away first into savings, before spending on other items.
Once you have saved money to meet emergency needs, consider investing other savings to grow your money. Think about your short and long-term goals. It is especially important to take time to think about your long-term saving goals as money saved can grow over time. Your savings can grow over time if you leave it in savings for many years. There are benefits to long-term savings. Long-term savings can be invested to further grow your funds. Look at investment choices that are appropriate for your goals and risk levels. By investing, you are deciding where to put your money, where it will grow and provide additional funds to help you achieve your goals.
It is never too late to save and invest.
Saving and investing are both important to consider in your future planning. Through saving money, your money is kept safe, and easy to access should you need it. By investing early over time, your money grows in value, benefiting from the magic of compounding.
Remember that investing early, along with compound interest, can result in higher investment amounts versus a late investment start. Take time to think through your savings needs and goals, both now and for your future.
Reviewed in 2022