INVESTINGBUDGETING

Saving vs. Investing: Where to Begin

Understanding the difference between saving and investing is crucial for financial success, especially for beginners. This article demystifies these two key financial concepts, guiding you on where to begin based on your financial situation and goals.

Understanding Savings

Savings accounts are typically low risk and easily accessible, ideal for short-term goals or emergency funds. The focus is on preserving your capital. If you’re looking to start saving, a great way to begin is to research savings options at your financial institution and find an option that’s best for you. You may choose a low-yield savings account or a high-yield savings account like a certificate or an Insured Money Management Account. Keep in mind it’s important to research the terms of these options and find the one that aligns best with your goals. Once you have your savings account, start by setting aside a portion of your income to go into that account.

The Basics of Investing

Investing involves purchasing assets like stocks or bonds with the expectation of generating higher returns over the long term. It can carry more risk than a savings account but typically offers greater growth potential than savings alone. Learning how and where to start investing might seem daunting but asking friends and family — or even financial advisers — is a great place to start. Before starting those conversations, identify your long-term financial goals and risk tolerance to determine if and how you should start investing. Understanding your risk tolerance — or how much you are financially able to risk when your investment selections decrease in value — is a vital part of beginning to invest. This should be an amount that you are comfortable losing while still being able to cover all your expenses. Once you’ve figured out your risk tolerance, try starting small to get a feel for what it’s like to begin investing. After you get comfortable with that, explore other avenues of investing that may aid in helping you reach your financial goals.

Striking a Balance

A healthy financial strategy often includes both saving and investing. Your allocation to each should align with your risk tolerance, timeline, and goals. Assess your financial situation to decide how much to save versus invest by reviewing your spending habits and your monthly budget. Consider speaking with a financial adviser or a trusted individual for tailored advice in order to protect your finances and ensure a prosperous financial future.

Deciding between saving and investing depends on your individual financial goals and circumstances. Understanding the nature of both allows you to make informed decisions, laying a strong foundation for financial stability and growth.

Sources: https://www.sec.gov/about/reports-publications/investor-publications/investor-pubs-asset-allocation