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Should I save or invest my money?

We explore saving and investing, unpack what these terms mean and whether you should save or invest, as well as different ways to do both.

Summary

  • Saving money is usually useful for short-term goals, while investing money is helpful for long-term goals.

  • There are different ways to save and invest depending on your financial circumstances.

  • A financial adviser can help you decide whether you should save or invest.

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It’s much easier to choose between saving or investing when you know how these options can help you achieve your goals. 

Saving money is ideal for short-term goals and ‘rainy days’ such as unexpected expenses and emergencies.

Investing money is a way of growing your money for long-term goals, such as your retirement or your children’s education. 

In addition to this difference between saving and investing, it’s important to remember that what works for one person might not work for you.

For example, some investment products require a bigger initial investment than some savings accounts do.

Investments also require regular management, whereas savings tend to be more straightforward.

Should I save my money?

To decide between saving and investing, there are several factors that you should consider. 

Think about your goals. Do you want to save enough money to spend a couple of weeks at the seaside or cover unexpected events such as a broken boiler?

If so, traditional ways of saving money might be the best option, as they’re a good way to build up an emergency fund and pay for short-term goals.

While there is minimal risk of loss with cash savings, it’s important to remember that they aren’t entirely risk-free.

Cash savings can struggle to keep up with or beat inflation, and they offer lower yields than investing in riskier but higher-yielding assets, as traditional banks usually offer lower rates on their accounts.

How should I save my money?

The next step is to consider how you can go about saving money.

These five tips can be good ways to start:

  1. Create and stick to a budget: List your income and expenses, see where you can cut down and how much you can save regularly, and then stick to your budget.

  2. Reduce your energy bills and food expenses: Use energy-saving tips to cut your monthly energy bills and find ways to reduce your monthly food and grocery expenses.

  3. Shop around for deals: Use price comparison websites to find the best deals for things such as broadband, insurance, and mobile phone contracts (if you’re not on pay as you go).

  4. Look for the best savings options: Not all banks or savings accounts were created equal. Look for savings products that offer the best rates while still offering easy access to your money.

  5. Save some money each month: Make saving money each month easier by setting up a regular debit from your bank account to a savings account every payday. This way, you can try to save before you start spending your money.

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Should I invest my money?

If you want to make an informed decision when choosing between saving and investing, you also need to take a closer look at investing.

When you invest, you can spread your money across various investments such as bonds, shares, funds, and property. 

While these are riskier options than traditional savings products, they do offer a significantly higher yield, although you’re only likely to achieve this over the long term.

This is one of the reasons why investing is seen as a good way to grow money for long-term goals, such as university funds or a house deposit.

One of the biggest advantages of investing money is compound interest.

This is calculated using the interest earned on the principal amount you invested and on the interest that has already accumulated up to that point, so you earn interest on interest.

While this certainly could see your money grow over the long term, investments can rise and fall in value.

Along with the risk of losses, especially over the short term, investing requires commitment and discipline, and you may need to lengthen your time horizons to achieve the returns you want.

When should I invest my money?

If you want to invest your money, it’s natural to wonder when to do it.

Remember that, often, it’s about time in the market rather than timing the market.

You can consider  investing when: 

  • You won’t need your money for at least five years.

  • You’re ready and able to accept a level of risk.

  • You’ve already saved enough money you can access easily in an emergency.

  • You’re looking for opportunities to grow your money more than a cash savings account allows.

How should I invest money?

These five tips may help you answer the question of how you should invest your money:

  1. Think about risk: Investing money always involves some risk, as there’s a chance you might get back less than you invest. A financial adviser can help you work out how much risk you’re willing to take on and help you craft an investment strategy.

  2. Be prepared for the long term: Investing is a long-term exercise. It’s impossible to time the markets, so be prepared to wait for five or more years, during which you’ll likely see your investments fall and rise in value.

  3. Decide whether you’ll be an active or passive investor: An active or passive fund can be a good option if you’ve never invested before or don’t have time to follow the markets daily. Professional investors actively manage active funds for a management fee. Passive funds (index trackers) passively track an index such as the FTSE 100 and come with lower fees as there’s no active management.

  4. Diversify your investments: By opting for various investment products to create a balanced portfolio, you expose yourself to more opportunities and spread risk. Consider investing in stocks, bonds, shares, and funds. You can also consider investing in property, especially if the property is commercial rather than residential.

  5. Invest regularly: Consider investing smaller amounts of money regularly, known as pound cost averaging. For example, if you have £2,000, split it into four £500 or eight £250 investments at monthly intervals, which can help protect you from market volatility, and potentially help you pick up shares at a lower price.

Want more guidance on saving and investing?

The main difference when it comes to deciding between saving and investing is that saving is usually a short-term approach, while investing is done with long-term goals in mind. 

You can find a financial adviser through Unbiased to learn more about saving and investing and for expert financial advice on how to achieve your goals based on your unique circumstances. 

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About the author
Our team of writers, who have decades of experience writing about personal finance, including investing, retirement and pensions, are here to help you find out what you must know about life’s biggest financial decisions.