People are not satisfied with what they have and there is a constant strive to earn more. And once they acquire these funds, the next question that strikes is: what to do with this money? To spend or invest? We are able to answer this question.
Before we start to clarify difference between investing and saving, it’s very important for you to understand a few basics. One of the big keys is that saving and investing are two related, but independent, processes that you shouldn’t confuse.
Saving is the process of putting cold, hard cash aside and parking it in extremely safe, and liquid (meaning they can be sold or accessed in a very short amount of time, at most a few days) securities or accounts. This can include savings accounts, short-term certificates of deposit and so on. The highest goal for these funds should be to keep pace with inflation but you should avoid risk at all costs.
Investing is the process of using money in the way, that they will make you wealthier with each passing year. An investment can include anything from stocks, mutual funds, bonds to trading Forex market.
How Much Should I Save Versus How Much Should I Invest?
Saving always comes first. Think of it as the foundation upon which your financial house is built. The reason is simple - unless you inherit a large amount of money, 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 mortgage, loan payments, 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 that will require a large amount of cash in five years or less should be savings-driven, not investment-driven. The stock or Forex market in the short-run can be extremely volatile, losing more than 20% of its value in a single month.
Only after that these things are in place, and you have health insurance, should you begin investing.