We’re all good at making money — knowing exactly how we want to go down in the career path, and profiting from it — but never actually taught on how to manage money. Sure, back in the day, we were given piggy bank and were taught that saving money is an important skill that we need to exercise. But, we were all so focussed in the concept of savings, and completely estranged with the term investing.
Both are somewhat equal in terms of benefitting us which resulting in giving the opportunity to have more money in the future. So, what’s the difference between the two? Let’s define each term, and how we can implement them into our financial plan in a smart way.
Saving money is the process of putting cold, hard cash aside and parking it in extremely safe, and liquid securities of accounts. This means that they can be sold or accessed in a very short amount of time when you reach for them.
Investing money is the process of using your money, or capital, to buy an asset that you think has a good probability of generating a safe and acceptable rate of return over time. This means that they make you wealthier even if it means suffering volatility, perhaps even for years.
Saving VS Investing
Both are equally great, but one thing to keep in mind is that saving money should almost always come before investing money. Reasons being is that savings will provide you with the capital to feed your investments, so if times get tough where you’d need cash, you won’t have to sell out the investments at the worst possible time. Think of savings as the foundation upon which your financial house is built, if you will.
Now, investing seems to be an intriguing idea, while it also can be very intimidating for a first-timer. Most likely, the common question beginners have would be of how to start and what should they invest in. However, there are some tips that can help you be a guide to start in the world of investment, such as:
- Set investment goals: what do you want to get out of investing? Take into consideration as well of your income, capital appreciation and safety, personal circumstances, and financial position.
- Invest early — The sooner you start, the less money you will need every year to achieve your investing goals.
- Make investments automatic, by setting aside a certain amount of money to be invested each month through various brokerage service firms and automated investment services.
- Look at your finances — Make sure that you leave yourself with enough money to pay for regular monthly bills, loan payments, etc. — You don’t need a lot of money to get started with investing.
- Learn about investing and the basic terminology, such as stocks, bonds, mutual funds and certificates of deposits — to help you make coherent decisions in investing.
- Be wary of commissions — Professionals would try to talk you into buying investments that give them high commissions. Unless you’ve done some serious research, don’t get too tempted.
- Diversify your investments, in order to avoid losing too much money when stocks go down. That way, you will have some stocks that are rising, even when others are falling.
Last but not least, it’s a good idea to always study the markets to keep yourself informed. You could read up on the things you have invested in, and be on the lookout for resources that keep up with market trends as well as the global economy. On the side note, true investments are backed by some sort of margin of safety, and the best investments tend to be the so-called productive assets such as stocks, bonds, and real estate.