Should I save or invest? The answer is both
Since the potential return on investments are higher than savings, why should you save? Why not invest all the money that you save?
The answer is “do both.”
The objective of saving is to preserve your money and to make sure cash is available for your short-term needs, both anticipated and unanticipated.
Anticipated needs could be a travel plan, educational fee coming up in a few months, a new refrigerator, upgrading furniture that has been planned for a while and buying new clothes.
Unanticipated needs could be a sudden requirement of cash, an emergency, a family commitment that was not planned for or a sudden loss of income.
You should build a sufficient cushion of savings before you start investing.
Earnings → Savings → Investments
How much cushion should you build?
Most financial planning experts will tell you to build a large enough pool of savings that can last for six months of normal living expenses.
If you are not prepared for unexpected expenses, focus on savings. Life can throw curveballs and you have to be prepared for it. A savings cushion is like having insurance against these uncertainties.
Saving is an act of preserving your money. By saving you are ensuring that you will have enough for upcoming expenses or a financial emergency.
Investing is a growth strategy. By investing you are ensuring growth of additional money you have now into much more for the future. Investing comes with some risk and those risks have to be managed by professionals.
But remember, savings versus investing is not an either / or decision. Both are important to become rich and stay wealthy.
