Should I Save, Invest, or Both?
Wow- What a huge question you may be asking yourself. Up until now we have told you that you need an emergency fund, you need to pay your bills, you need to have some fun, and you need to invest for your future. Oh my, how do you possibly do all of these things? It's not a zero-sum game. You should be excited, not anxious about it. We will get there together.
Everyone will have different opinions on saving and/or investing because it really depends on how you view money and the plans you have with your money in the future.
Depends on:
Time Horizon
Goals
Risk Level
Every single time you decide to start setting aside some money you need to ask yourself these three questions. What is my goal, what is my time horizon, and what is my risk level? With these three questions answered you will be able to formulate a savings or investment plan based on your specific goals.
The decision to save or invest for a particular situation that you are planning for has a number of things that need to be considered and each decision has its drawbacks and benefits. This is why it is most likely that over the years you will develop and undertake both saving and investing strategies.
Pros and Cons of Each Strategy
Saving generally works well for people who need quick access to their money (liquidity). Think emergency funds. Saving also works well for individuals who are unwilling to take on substantial risks with their money. Savings strategies also work for people that have much shorter-term savings goals - their money is not tied to market risk.
Investing generally works when you have some money that you can allocate outside of your required expenses. You want to use investing strategies for goals that have a bit of a longer time horizon. Investing also will require the individual to take on more risk than that of someone who may be only saving money.
Learning Checkpoint:
Optional Activity: We encourage you to fill out this Savings Goal Worksheet.pdf Download Savings Goal Worksheet.pdf