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If you look at any money saving content, whether it’s money bloggers and vloggers or financial websites, one topic that always seems to pop up is saving vs investing and which one is better. It can be a bit confusing to figure out what you should be doing with your money. Today I’m going to try and break down each option into easy to understand pros and cons to help you make an informed decision about what’s best for you, saving or investing or both!
When it comes to saving or investing I strongly believe there are pros and cons to each and in all honesty I would look at balancing both when it comes to learning how to manage your money. I don’t think it’s about picking one over the other but rather learning how to do both successfully.
What is saving?
Put simply saving is setting aside money for the future. We often rely on savings to cover those unexpected costs like vets bills or a new oven when yours stops working. So saving isn’t just for the distant future, it’s for those days where things go a bit wrong. Saving for the distant future is worth thinking about as you do know how much you’ll get in return. However over time your money will get you less due to inflation.
Pros of saving
There are many pros to saving least of all it’s pretty simple. You can add to your savings regularly or in one-off payments. By using an easy access account that money will always be there for you to dip into should you need it too. You get back exactly what you put in (plus any interest) whenever you want it. Easy!
Another big pro to saving, and something always worth thinking about when it comes to money, is that it’s safe. The Financial Services Compensation Scheme covers you up to £85,000. That means if a U.K. bank or building society goes bust you can get back up to £85,000 of your savings.
Another plus side to having savings is that you can access your money any time. We all know life doesn’t always go to plan and sometimes we incur unexpected costs. Having savings covers these times and means you have instant access to money to help you cover these things.
Cons of saving
Perhaps the biggest down side to saving is that it won’t ever beat inflation. Sure you’ll get interest over time but this is actually really small compared to the rate of inflation. So while you know exactly how much you’re getting with savings it will buy you less over time. This means if you’re saving long-term, lets say for retirement, then by the time that happens your money won’t get you as far.
What is investing?
Investing also allows you to save for your future. The difference here is you’re putting your money into something you believe will go up in value. The most well-known example of this is shares where you buy a tiny piece of a company. Investments fluctuate a lot which means you could end up with a lot more money than you put in but you could also lose all your money too.
Pros of investing
Investing is best done over a long period of time which allows you to plan for the future. Investing is great for long term money goals as if it does ever dip a longer time frame gives it chance to recover. This makes investing not so great for emergency funds but a pretty great option for any plans you have in your distant future.
While investing certainly isn’t risk free, something that we’ll get onto in a moment, you do have the potential to make more money than you ever would from saving. Planning when you want to access your money can help mitigate the risks.
Cons of investing
Investing can be quite risky and it’s certainly not a guaranteed form of money the way saving is. Investments fluctuate regularly so you can never be totally sure what you’ll end up with. Put simply, you’re not even guaranteed to get the money back that you invest. You can lose money.
Investing also isn’t something I’d recommend jumping straight into without doing some research. Almost anyone can go ahead and open a bank account and start saving but investing requires a little bit of research to know what you are doing and to learn about the different options available.
Which is better? Saving or investing
When it comes to weighing up to pros and cons of saving vs investing I don’t think you can say one is better than the other. As I’ve said I think the best way to tackle this is to look at how to balance saving and investing together as they’re both great options and work really well together. It’s about finding what works for you and figuring out how much you can save for those unexpected costs and how much you can invest for your future.
Relying solely on saving means you’ll only ever get back what you put in and in the future it’ll be worth less.
Relying solely on investing means all your money is at risk but you also can’t access it instantly as it’s best to invest over a number or years.
By balancing both you have access to an emergency pot of money as and when you need you and investments that will hopefully ride out any fluctuations and make you a much bigger return than what you originally invested. It’s win win.
The infograph below breaks it down really well and it’s a great reminder that if possible it’s best to save and invest rather than pitting them against each other.
Do you currently save or invest for the future? Will you be looking at how to balance them both for a better future? Let me know in the comments!
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