Nowadays, maintaining a job for more than a year is already an achievement. But having a stable source of income from employment isn’t enough to improve the quality of your life. In order to do so, you need to be smart when it comes to growing your money. You need to either deposit your earnings in a bank or start an investment portfolio.
But is saving better than investing or is the latter better than the former? Should you be sticking to one strategy on your way to becoming rich? Today, we’ll differentiate saving and investing and try to figure out which one’s the optimal way to grow your money.
Is There a Difference Between Saving and Investing?
It’s easy to mistake one over the other. After all, both concepts involve setting aside a good portion of your income and keeping it somewhere else. Basically, the difference lies with what you’re going to do with the portion you took from your monthly income.
Saving involves taking some of your income and placing it in safe and liquid securities or accounts. Liquid doesn’t involve beverages, mind you. It means the account where you’re placing your money can be sold or accessed in a short amount of time.
Investing involves taking some of your income to buy an asset that has a good probability of generating returns over time. This is where mutual funds, stocks, UITFs, and other overwhelming investment terms come in. It has a steep learning curve, for sure.
Why Should You Start Saving?
It’s safe to say that you’ve already understood the concept of saving money since you were a kid. Remember when you used to save money for an upcoming concert or the latest video game title? Now that you’re an adult, you should continue doing so—only with a few tweaks. Basically, if you have a limited knowledge of investing, start by saving money first.
Opening a bank account for your savings is now the standard. Not only are you securing your money, you’re also growing it just by keeping it there, thanks to deposit interest rates. Yes, the more you save, the more your earnings earn interest themselves. You can open a bank account from trusted banks, but note that most of them only offer interest rates up to 1.56%.
Or if you’re feeling adventurous, you can also try entrusting your money to digital banks like ING Philippines, CIMB Bank, and UnionBank. These banks offer high interest rates of up to 4% per annum and the entire banking process is done completely online. See, keeping your money under your bed isn’t “smart” anymore. You have to trust financial institutions more.
Why Should You Start Investing?
You should start investing if you feel confident about your investing knowledge. While it definitely requires more effort, it doesn’t mean beginner’s won’t get the hang of it. In fact, there are beginner-friendly investment types out there that will surely help you get started. Want to know more about them? Start reading on financial blogs like Moneymax to learn more.
Another important thing to consider when it comes to investing is the inherent risk. Unlike saving where you won’t lose money unless you withdraw it all, you can lose money from your chosen investment. Before you start investing, identify your risk profile, or the evaluation of your willingness to take risks. The basic risk profiles look like this:
- Moderately Conservative
- Moderately Aggressive
- Very Aggressive
Once you’ve determined the type of investor you are, it’s time to pick the right investment. Conservatives and beginners in general should look at mutual funds and UITFs, while aggressive risk-takers should consider stocks and real estate investments. Investing can help you achieve your long-term financial goals without exerting more effort on your part.
How Much Should I Save or Invest?
When it comes to saving money, there’s really no strict rule to follow. You can save money at your own pace. Most financial experts suggest the six-month rule, in which your savings should sustain you for at least six months in case you lose your job. There’s also the 20% rule which involves taking 20% of your income for savings alone. But again, it’s your choice.
The same goes for investing money. There are investment types out there that lets you start with at least PHP 1,000. You can always choose to exceed and invest more. You can even invest some of your savings to grow your money and build an impressive investment portfolio in record time. Just remember to consider all the factors before choosing a strategy.
Saving vs. Investing: Why Not Both?
Because really, there’s no stopping you from doing both. The current pandemic shouldn’t stop you from doing either one of these financial basics. Which one do you prefer? Are you willing to try both money-making methods? Whatever route you choose, it’s good enough that you’re starting to think ahead. Keep growing your money and achieve your financial goals!
Ricky is the zaniest Senior Content Writer at Moneymax, with over five years of writing experience in the digital marketing industry. Save money on car insurance, credit cards, loans, and gadget protection plans when you compare and apply at Moneymax!