• The most popular methods are transferring money to a bank savings account, a credit union, or a building society.
• Long-term goals refer to the things you plan to do in a decade, such as retiring.
Should you save or invest your money? Sooner or later, almost every consumer is faced with this dilemma. Learn how to plan your finances wisely in the short term and long term. Everyone can save up for large purchases or retirement, but is investment right for you?
Key Differences
When you save money, you put it aside into some cash product bit by bit. This may be done for a specific goal like paying for a holiday, making the down payment on a mortgage, or covering any medical emergencies. The most popular methods are transferring money to a bank savings account, a credit union, or a building society.
The investment allows you to make your money grow, as you buy products you expect to gain value in the future. Investors are focused on long-term profits. This sets them apart from forex trading professionals, who buy and sell assets frequently.
According to Forextime, the most popular instruments to trade in Nigeria include currencies, stocks, and derivatives like CFDs. The same instruments may be used for investing, along with property. Investment lets you make more money, but it is also risky.
Is Saving For You?
Saving is suitable for everyone. Moreover, the only situation when it is not advisable is when you have to get your debt under control. Once you get rid of high-interest obligations, start putting some money aside. Savings can be a lifesaver for the following reasons:
- You Build an Emergency Fund
Every person regardless of their background should create an emergency fund. At the very least, it must include three months worth of essential expenses, such as food and rent. This savings account must allow instant access, so you can immediately use the funds when necessary.
- You Can Save More
After creating an emergency fund, continue saving if you can afford to. Save up for large purchases. Set clear savings goals and calculate the amount you should put aside every month to achieve them. If you do not need this money in the next 5 years, investing it makes more sense.
Is Investing for You?
The main concern for investors is the possibility of making a loss. Any assets may go down or go up. At the same time, your savings may also lose value due to inflation if it is higher than your annual yield rate. Whether to take up investing or not depends on the amount of cash available, your age, objectives and personal circumstances.
Evaluate Your Goals
Short-term goals are the things you intend to do within the next 5 years, such as going on holiday abroad. For these goals, cash deposits like bank accounts are the most preferable. Long-term goals refer to the things you plan to do in a decade, such as retiring. In this case, investment is recommended, as cash deposits may lose value due to inflation.
Stock market tools are suitable for long-term goals, as you are more likely to take in high returns. Seasoned investors reduce their risks through diversification — i.e., by purchasing different assets in unrelated markets. In this case, if one of the instruments brings a loss, it may be covered by profits made elsewhere.
Finally, between the short-term and long-term perspectives, there are your medium-term goals. These are the things you plan to do within the next 5-10 years. You may choose cash deposits, investments, or both, depending on your risk tolerance.
For instance, if you intend to purchase a house in 8 years, and you know you will need all of your savings, it is safer to keep them in a savings account. On the other hand, if your needs are quite flexible, consider investing a portion of your funds. Keep the risks under control by diversifying your portfolio. For example, you could invest in stocks, CFDs, ETFs, mutual funds, and cryptocurrencies.
To Sum Up
Saving means putting money aside for specific goals, such as a large purchase or retirement. Investment is different, as it involves more risk and allows higher returns. To make the most of your financial assets, combine both methods after dealing with any high-interest debt you may have. Do not let your money sit in a savings account with low interest, while inflation will slowly erode its value.