.
.

Saving vs. Investing

10/18/2018

Saving and investing are important to set yourself up for a brighter financial future. Learn the difference between saving and investing as well as tips to make the most out of your money with both.

Saving vs Investing

Saving vs. Investing

In a comparison of saving and investing, there are benefits and disadvantages for both. Saving is a low-risk method of preserving money that can be accessed easily. Investing is a long-term risk that may have a much higher return. Savings should be built first, but investments are an important means of achieving high returns off of your money over time.

What Is Saving?

Saving is the process of keeping your money for future use. Below are three tips that can help you get on the right track to saving.

  1. Don’t Focus on a Specific Number
    It’s important not to focus too much on setting a specific savings goal because it can feel overwhelming. Rather than designate a set amount for emergencies, just get started. Even contributing a small amount of money to your savings each paycheck can set you on a path to grow your savings.

  2. Save As Much As You Can
    Every little bit counts when it comes to saving. Make automatic contributions from your paycheck to get in the habit of saving a small amount each month. Increase these contributions over time to help build your account.

  3. Save Before You Invest
    Saving money should come before making any type of investment. A typical rule of thumb should be to save enough to cover all of your personal expenses for at least six months, but again, don’t get too stuck on one specific goal. Like with anything, investing can be risky, so it’s important to have extra funds set aside.

What Is Investing?

Investing is committing money with the expectation of achieving a profit through the purchase of assets that are expected to grow in value. Here are a few tips to better understand how to invest.

  1. Don’t Wait to Invest
    Despite not meeting your goal or set number regarding your savings, that shouldn’t discourage you from taking the opportunity to invest. You can catch up later if needed, but the more time you let pass by, the harder it is to actually get on track.

  2. Invest Early
    Investing early grows with compound interest. Investing your money now, even if it’s a small amount, can add up to a large sum over a period of time. Consider investing in a 401(k) or IRA early in your career and make sure to leave your investments untouched so they have a chance to grow.

  3. Don’t Dip Into Your Investments
    While it might be tempting to use the money from your investments for other pressing situations, don’t treat your 401(k) or IRA like a checking account. Each time you borrow against your 401(k) or IRA, you’ll have to pay penalties for withdrawals before the age of 59, including loans that aren’t repaid. Most importantly, you won’t have enough funds to use for your retirement. When there’s an emergency, try to look into other options before dipping into your 401(k) or IRA.

It’s important to know the difference between saving and investing. Whether you want to save for that new car or house or invest in a business, both can have long-term benefits. Keep in mind that it’s easier to start saving and investing early rather than waiting until later. Your future self will thank you.

Erin Elis 
Erin Ellis
Accredited Financial Counselor ®
Philadelphia Federal Credit Union
eellis@PFCU.COM