Differences between Savings and Investments?
MANY new investors don't understand that saving money and investing money are two different things totally. They have different purposes, and play different roles, in your financial strategy and your balance sheet.
What is Saving Money?
Saving money is the process of putting cold, hard cash aside and parking it in extremely safe, and liquid securities. This means that the money can be accessed in a very short time space or the securities can be sold quickly to raise the cash requirement. Savings extends to having a savings account with your bank.
In the end, saving money comes down to simple math. It really is as fundamental as 2+2=4.
What is Investing Money?
Investing money is the process of using your money, or capital, to buy assets that you think have a good probability of generating a safe rate of return over the period of time you hold the asset. This asset tends to make you wealthier even if it means suffering volatility, perhaps even for years. Such assets include bonds, stocks, real estate etc.
Investments use a concept known as compounding. Compounding is the process of generating more return on an asset's reinvested earnings. i.e. interest earning more interest. To work, compounding requires two things: the reinvestment of earnings ( interest) and time. Compound interest can help your initial investment grow exponentially. For younger investors, it is the greatest investing tool possible, and the number one argument for starting as early as possible. How Much Should I Save Versus How Much Should I Invest?
Saving money should almost always come before investing money. Think of it as the foundation upon which your financial house is built.
The reason is simple. Unless you inherit a large amount of wealth, it is your savings that will provide you with the capital to feed your investments.
As a general rule, your savings should be sufficient to cover all of your personal expenses, including your loan repayments, insurance costs, utility bills, food, and clothing expenses for at least six months. That way, if you lose your job, you’ll be able to have sufficient time to adjust your life without the extreme pressure that comes from living paycheck to paycheck.
Any specific purpose in your life ( goals such as retirement, education, purchasing land/house or purchasing a car) that will require a significant amount of cash in more than 6 months should be investment-driven. A general rule is that you should invest approximately 15% of your income.
Once you have these in place, we would suggest you look at health insurance and life insurance. This is really vital in any financial plan you work on.
Contact #AltusCapital on +260 211 257228 or +260 966 725 238 for help in securing your financial future.