Save or Invest? How to DecideLast updated on
We all know we need money to make money. The best way to do so is to invest. Your money would start to multiple making you a richer person. However, investing alone is not enough. Smart investors also save.
You should never solely save or invest all your money. In this article, we’ll talk about how to decide how much to save and how much to invest.
Money is an asset that loses value with time. The best way to make more money is to invest what you have.
You can invest in precious metals, forex, stocks, real estate, and more. Different options offer different benefits.
The most important thing is that the more money you invest, the more money you will make. Let’s say you buy 10 stocks for $500 ($50 per stock). After two years, each stock goes to $80, and you sell it for a total of $800, making a profit of $300. Plus, the investment also paid dividends.
If you had invested more you would have made more profit. It can make people greedy but it’s important to know about how much to invest and how much to save since saving is as important as investing if not more.
You don’t know what the future holds. You or someone close to you may require money to pay medical bills or buy a house. If you have no savings, you will not be able to foot the bill.
Your only option will be to break your investment, which may end up costing you money. For example, you may have to sell your property at a lower rate due to the urgency.
This is why it is important to find a balance.
How Much to Save and How Much to Invest
There is no formula here. Most people say a 50-50 ratio is perfect, however, we think it largely depends on your earnings and your overall financial condition.
Always invest with a goal in mind. For example: to buy a new car worth $24,000 in 12 months.
Now, you work as a freelancer and make between $6,000 to $8,000 per month. You will have to save $2,000 per month to reach your goal.
Ideally, you should stick to your goal of $2,000 per month even if you make more money on a given month. This extra money can go into your savings account, which should also have a goal, i.e: 6 months’ pay, which equals to about $36,000.
Once you have enough in your savings account, you can start investing more and vice versa.
This simple trick can help you decide to save or invest. Remember to find a balance and change your plan according to your financial conditions.