How to choose between savings and investments
Having the right plan to improve your financial status could be a decision between savings and investments.
04:00 16 September 2013
When the economy is suffering, it’s common to wonder how we can make our financial lives a little bit easier. Some people may rely on savings, while others rely on investments. It’s probably a good idea to have some of both, but the actual plan for you could be different based upon your finances and personal goals. Here are just a few things to consider if you’re wondering when to use savings and when to look at investments:
- Breaking your financial goals into two main categories can be very helpful. The most common way to separate your goals is to label them short-term and long-term. The way you try to improve your finances will depend a great deal on the amount of time you have in which to achieve your financial goals.
- Once you know which goals are short-term and which are long-term the next step is to figure out how much money you have to use either for savings or investments. As a general rule shorter-term goals work better with accounts like Independent Savings Accounts that yield better returns than a regular savings account, but provide virtually no risk. Longer-term goals allow more flexibility because there is more time to recover from potential risks. These are better for medium-risk investments.
- One aspect of savings and investments is that the more you deposit or invest up front, the more money you will earn on it. Since that is the case, it is sometimes best to put as much as possible into whichever option you want so that you can maximise your earnings. You can still put in smaller amounts, but you may have to start with a basic savings account first in order to build up an amount that is significant enough to earn the kind of interest you would desire from investment opportunities.