Introduction to Savings and Investments
Introduction to Savings and Investments
What is Savings?
When we talk about savings, we mean the money you put away and do not spend. The idea is to use it sometime in the future to buy something such as a car, holiday, house deposit, or unexpected emergency expense.
It’s something which you do overtime. For example, by putting away a certain amount each month regularly into a savings pot or account when you get paid.
The benefits of savings
Everyone should save, even if only for a rainy day. Doing so can give you peace of mind in the short term should you need to pay for something unexpected. It can also be a way to help you achieve mid to long-term goals.
The sooner you start saving, the more money you will have put away for things you may want to use it for later. This could be buying your first house, paying for a big life event such as a wedding, or, if you are thinking long-term, your retirement!
How much should you save?
It’s generally considered a good idea to have at least three to six months’ worth of living expenses saved for emergency expense.
When can I start saving money?
Savings can be start from any age. As we mentioned earlier, the sooner you start, the better it will work out in the long run.
You might want to start small. Try saving towards a goal such as buying yourself an item of clothing you want or saving up for a trip with friends or family. This way you can work out what method works for you and use that for bigger, longer-term goals.
What is Investment?
Investments are something you buy or put your money into to get a profitable return.
Most people choose from four main types of investment, which are grouped according to characteristics they have in common. These are known as ‘asset classes’:
- Stocks – you buy a stake in a company
- Cash – the savings you put in a bank or building society account and get interest
- Real Estate – you invest in a physical building, whether commercial or residential
- Bonds or Fixed interest securities – getting return for loaning money to a company or government.
The various assets owned by an investor are called a portfolio.
As a general rule, spreading your money between the different types of asset classes helps lower the risk of your overall portfolio underperforming.
There are several different ways of investing. Many people invest through collective or ‘pooled’ funds such as unit trusts.
Difference between Savings and Investments
With such a vast array of financial products available these days, it can be difficult to draw a clear line between savings and investments.
Well, both are, of course, money management skills. However, investing differs from saving because it is a little more involved. There are various investment options and strategies. There are so many ways to save, but there are infinitely many ways to invest. In addition, you don’t have to have money to invest to start with. You can borrow, invest, earn a return and then repay what you borrowed as long as you are sure that the return you get is greater than the interest on your loan.
As a saver, you will be taking very few and very small risks with your money but as an investor you are taking a much greater risk. Not only is the return on offer to you likely not to be fixed or guaranteed, but the capital sum you invest is at risk as well.
Difference between Savings and Investments
With such a vast array of financial products available these days, it can be difficult to draw a clear line between savings and investments.
Well, both are, of course, money management skills. However, investing differs from saving because it is a little more involved. There are various investment options and strategies. There are so many ways to save, but there are infinitely many ways to invest. In addition, you don’t have to have money to invest to start with. You can borrow, invest, earn a return and then repay what you borrowed as long as you are sure that the return you get is greater than the interest on your loan.
As a saver, you will be taking very few and very small risks with your money but as an investor you are taking a much greater risk. Not only is the return on offer to you likely not to be fixed or guaranteed, but the capital sum you invest is at risk as well.
What should I do now?
There are so many different types of savings and investments, and there are potential risks with investments, it is wise to seek professional advice which can be tailored to suit your own circumstances.
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.
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