Guest Post, as I am out camping. Have a great weekend!
Trisha Wagner is a freelance writer and has guest posted for Budgets are Sexy and Free from Broke. I am happy that she has asked to guest post for Money Funk. This particular article correlates well with 6 Financial Things I Wish I had Known When Starting Out in Life. I hope you enjoy this article as much as I did. Enjoy!
In the wake of the recession, many people are finally seeing beyond the credit induced haze which they have lived in for years. Once considered normal and acceptable spending habits have now been proven to be financially detrimental to millions of consumers. As more and more people come to the realization that everything they thought they knew about managing money is wrong, they face a new challenge. While it is true that not everyone has been in the dark in regards to proper money management, a large portion of the population has no idea where to begin to get back on track. The first step toward securing your financial future is understanding the basics of saving and investing.
The Difference Between Saving and Investing
Whether you are a young adult just starting out on your own or someone who has had trouble managing your finances in the past, understanding the difference between the two is a good place to start building your future wealth.
â€¢ Savings- Savings accounts are the safest place to put your money. You should use savings accounts for short term financial goals and to build a safety net in the event of emergencies or unexpected expenses. There is no risk involved when putting money in savings and you have immediate access to that money should the need arise to withdrawal funds. Savings accounts offer low, fixed rate returns which means there is little room for growth over time.
â€¢ Investing- This process involves taking a portion of your savings and investing that money in stocks. Stocks offer the best opportunity for growth, however the market is volatile which makes investing a better strategies for long term goals such as retirement. There are of course no guarantees with investments and just as you could see exceptional growth, you take the chance of loss as well.
Essentially money placed in savings is money that is guaranteed to be there in the future. There is no risk of loss, however the potential for growth is minimal. Investments offer the best opportunity for growth and building wealth but not without risk. For people just starting out, it is important to understand the need for both strategies to ensure long term financial success. Before you venture into the complex world of investments, you must first build your savings which will serve as your safety net in the short term. In the past it was recommended that each person build their savings to cover all of your living expenses for three to six months. Once you have succeeded in building your savings you can then entertain the thoughts of investing for long term growth. There is one exception to the â€œsave first, invest laterâ€ rule and that is participating in employee sponsored 401(k) retirement plans with a company match.
Now that you understand the basic differences between savings and investments there is no reason to delay getting started. The sooner you begin to save the sooner your financial goals will be achieved.
Trisha Wagner is a freelance writer for DepositAccounts.com, where you can compare rates of checking accounts from dozens of banks in one place. Trisha writes regularly on the topics of personal finance and savings accounts.