Should you save or invest?

Many people when beginning their financial journey may think that investing and saving money serve the same purpose, or that one is better than the other. However, this isn’t quite the case. Saving and investing are equally important to your finances, and understanding their roles can help you create a much more stable financial plan - both short-term and long-term. Here’s why:

Saving money is important

Saving money is when you put your income aside with the intention to use it for a specific purpose in the future, generally, in your savings or current account. It’s a liquid asset which means that you can easily access it without it losing any market value in the short term. 

Therefore, the money that you save offers you security as you know that it’s always going to be there when you need it, whether it’s for a rainy day, a purchase you’ve been saving up for, or simply day-to-day spending. Having savings is key.

Scenarios when saving money is important:

• For your rainy day/emergency fund. You can find out more about this here.

• For a holiday (or any short-term goals).

• To pay your general living expenses.

• For future investment opportunities.

Investing is also important

Investing is when you use your money to buy an asset with the expectation of some financial return in the future. Whilst you can look at your savings as the foundation for your finances, investing can help you to build your wealth and reach your financial goals sooner. 

With the government’s target rate of inflation at 2%, this means that if you were to put all your money in a savings account with a 1% interest rate, your money would lose its value due to inflation. Therefore, investing may stop your money from being eaten away by inflation as you may earn a higher return. 

Having said that, it’s important to remember that investing your money comes with risk as there is no guarantee of returns. This is why having savings is crucial rather than putting all of your money into investments, as you may end up having to sell out of your investments and receive less than you originally put in.

The key takeaway

Whilst saving and investing money play different roles, they work together simultaneously. 

Think of it this way - you’ve probably heard the term “make your money work for you”. Well, in order to have your money work for you (by investing), you will need to have money in the first place (your savings). Your savings ultimately provides you with the means to fund your investments, therefore, it’s key to have your savings as a foundation first.

If you’re thinking about investing, you won’t want to miss our next blog where we cover some key things you may want to consider before you start!

The following is for general information and is not intended as a form of financial advice by Finndon or its representatives, nor the information intended to be relied upon by individuals in making any financial decisions.