All smart financial plans contain provisions for both saving and investing. What many people do not understand is that these are two very different goals to consider when it comes to planning for your financial future and helping to avoid such financial pitfalls as foreclosure or debt negotiations. Both saving and investing are vital if you want to both beef up your current financial standing and ensure a secure future for both yourself and your family.
Savings refers to money that you know you will want or need to spend within the scope of the next few years. Any money that you want to put away for “a rainy day” or decide to hold back in case an emergency arises goes into savings. Savings also includes any sort of cash that you are holding back for a larger purchase such as a vacation or car. Savings should be held in a low risk savings account. These savings accounts generally pay higher interest on the dollar as compared to a normal checking account. So in this way you can both have money set back for future expenses, and make more money off of that money at the same time.
Apples and Oranges
Investments, on the other hand, include money that you put into a certain financial sector (such as stocks or mutual funds) that is meant to be held until a far-off date in the future like retirement. Investments should be locked away in long-term accounts that are not designed to be touched for a certain period of time. This allows your investments to grow in value without any work on your account. Popular long-term investment accounts include 401(k)s, and IRAs.
Saving and investing are necessary when it comes to planning for your future financial health. Be sure that you recognize the difference between these two concepts, and then use them accordingly.