Saving and investing both form an integral part of your financial plan. It is important to have some money set aside in cash (savings) as this is very useful for unforeseen events. A portion of your money should also be put away for investment purposes as you want to make your money work for you and grow over time. My personal rule of thumb is that you should save at least 8 month worth of expenses in cash and then invest the rest. Your apportionment may be different as it will dependent on many factors such as what your goals are, your attitude towards risk and when you need the money.
With Savings Accounts and Cash ISA’s, the main idea is to keep some money safe for emergencies. Some characteristics of savings account include:
- Certainty about the amount you will be getting back due to low risk.
- Low returns as a result of the low risk being taken – but you can use an account like lovefruitful.com to boost returns.
On the other hand Investment Accounts such as buying stocks and shares or dealing in property are more for the long terms as although they make your money grow faster by giving you higher returns, they are riskier. Some characteristics of savings account include:
- Uncertainty about the amount you will get back as prices of the underlying investment asset may change.
- Higher returns than cash as more risk is take.
Below is an easy to understand picture from AXA self investor showing you the differences between saving and investing and when it is better to save or when it it is better to invest your money.