Building wealth is a process. It takes time, knowledge, intelligence, and sometimes even a bit of luck to build true wealth. There are plenty of ways and methods to build wealth. If you ask most high net worth individuals how they got wealthy you will get numerous answers. But for the most part, their answers will include two common factors: saving and investing.
Some people wonder which strategy is better: Saving or investing? Which option leads to wealth? The answer is both. In fact, it’s difficult to build real sustainable wealth without implementing both strategies. The trick is to know when to use each strategy. Knowing when to save and when to invest will make all the difference.
Why They Differ
Both saving and investing are designed to make you wealthier. But there are significant differences. Saving is low risk. It’s safe and it’s best for short-term goals. It can also give you immediate access to money. But it’s also a low return “investment.”
On the other hand, when you invest you have a higher risk, but also a much greater potential for return. Investing is not as safe as savings because there are no guarantees. It can take longer to get your money when you invest, but it is better if you’re saving for long-term goals.
When to Save Your Money
So when should you save? If you have a short-term goal then saving is the way to go. In other words, if you want to cash out your returns in less than three years, put your money into savings. If you’re not really a risk-taker and you don’t want to put your money at risk, that’s when it’s time to save. When you need quick and easy access to your money that’s a good time to save. Lastly, if you like the idea of FDIC Insurance or principal protection that’s another sign it’s time to save.
When to Invest Your Money
If you have more time and you’re focused on a long-term goal, like at least three years to five years, then investing is a good option. If you’re not afraid to take some risk and put your money on the line in hopes of a greater reward, then it’s time to invest. When you invest your money it has a better chance to grow. It will take more time, but it will grow much more than it will in a savings account. Unlike the safety of a savings account, the stock market can be all over the board. If you don’t mind the volatility of the stock market then go ahead and invest.
How to Do Both
The other option is to actually do both at the same time. The key is making a financial plan that best fits your needs. You can then determine how much to put into savings and how much into investing. Your financial goals will help you make those choices.
If you’re ready to build some real wealth then get the best of both worlds and make sure you start saving and investing.