Most of us save. Or at least we try to. But very few of us invest our money. Find out why investing is a good idea and start investing today…
We’ve all heard the benefits of saving. From our parents, friends and even our bank. And it’s definitely something we should do. But most of us don’t really understand investing.
The truth is, we should be doing both. Saving and investing.
Let’s have a look at the differences between saving and investing, and how you can start doing both.
Understanding capital growth
We have three options when it comes to money. We can either spend it, save it or invest it.
Spending is easy. We simply purchase the things we think we need and want. Unfortunately, we can’t be spending all the time. The more we spend the more we’ll be losing out on capital growth opportunities.
And that’s where saving and investing becomes important.
Saving and investing our money is important when we want to make future acquisitions.
To most of us, saving comes more naturally. We save up for the things we want most. But, wrapping our heads around investing becomes tricky, and with good reason. Not because we don’t want to invest, but because most of us don’t really know where to start or how to deal with the risk involved.
How do you earn capital growth through saving and investing?
Earn compound interest on savings
To put it simply, to save your money means that you are putting aside your hard-earned cash and earning interest on the balance. The money that you save should be kept in a tax-free savings account and should not lose value.
Your savings fund is typically used for emergencies, big unexpected expenses or for large future purchases such as a holiday or even a deposit on a car.
Saving is useful when you want to purchase high-cost items. Saving for big purchases will be cheaper than using a credit card. That plastic money has a high-interest rate attached to it.
A general rule of thumb is to put away at least three to six months the amount of your monthly expenses. This will stop you from using a credit card and prevent unwanted debt.
Saving won’t earn you an additional income, but it will reward you for your effort. The longer you keep your money in a saving account the more you’ll get rewarded with, thanks to compound interest.
The compounding interest won’t earn you a whole lot of money, for that you need a good investment.
Capital growth in investments
The purpose of investing is to stock up on assets that you think will earn a return over time, making you wealthier in the long run.
Investments are great for those who already have a sufficient savings account in place. Because inflation affects interest rates, the chances of earning more from a savings account is slim. Which means the money that you’ve put towards the savings account will lose value over time. So, your investments should earn you an interest that is higher than the inflation rate.
A lot of people associate investments with being high risk, with good reason. However, investments do generally come with a margin of safety. Investing in property or the Satrix Top 40, for example, are lower risk investments with great returns over time.
So where should you invest?
The best investments are assets that earn you more money while you sleep. These include investing in stocks, bonds, and real estate.
To find success in any investments you will have to understand how it functions, and that requires research and planning. Don’t skimp on research and planning before you acquire any investment.
Always keep in mind that investments are a long-term strategy, no matter the type of investment. The key to a successful investment is to remain patient for a long time, while the investment does the work for you.
Is investing for you?
Ultimately, it’s up to you.
We’re all in a different financial situation with very different financial goals. Start by make a list of all your long- and short-term financial goals. Are you in a financial position that allows you to start saving? If you are and you’ve saved up enough, start looking for your first investment.
If you don’t have a saving account yet, start by making your short-term goal to have an emergency fund within the next six months. Only thereafter you can start planning your investment accordingly.
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