A common question asked when it comes to personal finance is: should I be prioritising saving or investing? Both have pros and cons, but the right answer for yourself will be dependent on your circumstances and ambitions. Below we’ll explore some of the key factors you should be considering if you’re deciding between the two.
Saving
Pros
Your money is secure
The biggest factor that draws people to save is that you are almost guaranteed that your money will be safe and secure for as long as you need it. The amount of money you deposit in a cash ISA will remain the same, so long as you don’t withdraw any. You may earn a small amount of interest but this is insignificant unless you save a large sum or lock away your money for a matter of years.
You can plan for the future
With this security comes the ability to plan for the future because you can rely on that money being where you need it when you need it. Therefore, if you’re planning to buy a house or keeping cash for an emergency, savings is the best option for you because you won’t risk losing any money.
Cons
Inflation could eat away at your savings
With inflation rates continuing to increase, savings are technically losing value because the amount of money you have saved will buy you less than it would have at an earlier date. This is important to understand because if you’re committing money to savings and the interest rate you are offered doesn’t meet inflation – you will effectively lose money over time.
Investing
Pros
Greater potential returns than saving
Perhaps the biggest draw to investing over saving is the potentially greater returns that you can benefit from. Interest rates offered on savings accounts are typically lower than the average annual return on things like stocks – so if you have money that you won’t need soon for any particular reason – investing may be the way to go for you.
Make your money work for you
Having money lying around in a savings account when you aren’t saving towards a certain goal can be seen as a bit pointless. Investing is a good way to make your money work for you and contribute to your future financial stability and prosperity. There are many types of investing, from property to currency and stock trading, so you can choose the one that meets your ambitions and requirements the best.
Cons
You could lose money
The biggest concern around investing is that you can always lose money if the value of your investment decreases. This can be enough to deter people from investing altogether, but if you understand the risks and how to mitigate them, you can give yourself the best chance of success. Before you invest any money, consider whether it would be disastrous if you lost it all – that way even if things go terribly wrong, it’s not going to put you on the brink of financial ruin.
If you’re deciding whether to save or invest, consider what you are building towards and how important the money is to you. If you are saving for a house or a rainy day fund – saving will give you the certainty and security you need to store this money away for a later date. If you’re looking to build general wealth or if you have some spare money that is just sitting in savings – why not consider exploring investment options?
