Saving & Investing - Road to Financial Planning
The 20 in 50:30:20 rule is Saving. The terms ‘investing’ and ‘saving’ are often used interchangeably. But both are different and serve a very different purpose and different roles in financial planning. Is saving enough to achieve financial goals? Well that depends on your goals.
What is Saving?
Saving is the act of setting aside money for a future need or expense. When you choose to save money, you want to have the cash available relatively quickly, perhaps to use immediately. However, saving can be used for long-term goals as well, especially when you want to be sure you have the money at the right time in the future. Financial institutions offer several savings’ options, the most common being savings accounts in a bank, or fixed deposits, etc.
What is Investing?
Investing is the process of putting your money in financial products and investment avenues that offer the potential to generate income or aid in wealth creation. The most popular investment options in India include stocks, mutual funds, real estate, bonds, ETFs (exchange-traded funds), etc. It’s important to remember that risk and return go hand in hand when it comes to investing.
Should you SAVE or 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: you need a capital to invest and you will get the capital by saving
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 three to six months - This is referred to as Emergency fund also. That way, if you lose your job, you’ll have sufficient time to adjust your life without the extreme pressure that comes from living paycheck to paycheck. Only after this you should start investing.
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. The goal of investing is to make you wealthier, even if it means suffering volatility, perhaps even for years
Neither saving or investing is better in all circumstances, and the right choice really depends on your current financial position
Investing is better for longer-term money — money you are trying to grow more aggressively. When you are able to keep your money in investments longer, you give yourself more time to ride out the inevitable ups and downs of the financial markets. So, investing is an excellent choice when you have a long time horizon and won’t need to access the money anytime soon.
Saving and investing are two different concepts that work in tandem to secure your financial future; neither can survive without the other in this constantly inflating market. Investing is essential if you want to keep up with the ever-rising cost of living. Remember, the sooner you start, the more wealth you accumulate over the long run. The magic of compounding works wonders to boost your wealth empire. Further, when you invest for a longer duration, your investments tend to ride the volatilities of the market.
Happy Investing! Vijayeebhava..