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Deciding between Savings and Investments

Saving and Investing both have a place in our financial plan.

The key is to know if and when to put your money into a Saving or Investment plan, depending on your reason for wanting to grow it. Here are three key questions you should ask yourself before making that decision.

Do you have any Savings? You should save first, if you do not have any savings at all, especially an Emergency Fund. As the name implies, an Emergency Fund is essentially money that you have saved up for unforeseen events. Life can be quite unpredictable and a good way to guard against financial disaster is by having an Emergency Fund to fall back on when unexpected expenses and events like car repairs, medical bills and job loss show up.

Whoever thought on January 1st, 2020 when we were still in the festive mood, sending out gifts, New Year messages and we were all on a shopping spree without any restrictions, that Covid-19 will hit Nigeria and the economy like a tsunami? Yet it happened and it did not just hit Nigeria, but every country in the world and everyone. This tsunami hit so bad that you could easily tell people who were prepared for such eventualities from those who were not. Even those who were prepared were shaken to their pockets before they could find a balance. The first thing you want to look at is your personal income and expenditure statement.

What are you looking out for? What does your expense sheet looks like and how can you go about trimming your expenses to allow you save up more. At every stage and age, our needs and wants differ. This period has shown us that we can do without a lot of things we thought we could not do without.

What do you intend to use the money for and when do you need it? Do you need the money for a short term or long term goal? The Saving option is better suited for short term goals, while Investing is the better option to achieve long term goals. If you need the money in the near future for a big purchase like buying a car, then you should Save rather than Invest. This is because, Investing the money you need in the short term is risky. Your investment might lose its value and by the time you need the money, you might not be able to wait for the value to rise again. And in that case you will lose money.

However, Investing is the advisable option to achieve your long term goals. Investing gives you financial security and is a good way to protect yourself from inflation and other economic uncertainties.

Do you want easy access to the money? If yes, then you should Save. Investing is rewarding but it also takes time to mature and earn you good profits.

LISTEN, YOU CAN DO BOTH

Keep in mind that, when it comes to Saving and Investing, it does not have to be either/or. There is always the option of saving some and investing your funds once a plan is in place. It all depends what your financial goals are and the funds available at that time. We advise that once you have an Emergency Fund, you should divide your funds, allocate some for saving towards short term goals and invest some to secure your long term financial goals.

Remember; ALWAYS take the time to study and understand an investment before you put your money into it. Avoid investments that you know nothing about and do not invest in something just because someone you know has invested in it and is making good profits. People’s financial goals and risk tolerance differ, so take time to learn about the right investments for your risk tolerance.

Are you interested in our case study on this topic: kindly send a mail to programs@prosharefoundation.com and we would be glad to send you our case studies.

Regards,
Your Personal Finance Coach

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