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saving and investing

Saving and investing are two related but independent processes that require a careful balance in order to achieve the goal of building wealth. If you are not sure whether to save or invest, the answer lies in balancing a mix of both. Whether to save or to invest depends on your own individual goals and current financial situation. Let us first get to know the difference between saving and investing.
In savings money is put aside bit by bit to make a lump sum amount. People usually save for specific goals such as paying for a holiday, a deposit to buy a house, college fees for the kids someday or for emergencies that might crop up. Investing on the other hand is putting money to profitable use and making it grow by buying assets that increase in value such as property, stocks, bonds or shares in a fund.

saving and investing
Savings Basics
The question then becomes what comes first, saving or investing? As a general rule, saving always comes first. If building wealth can be compared to the process of building a house, then saving will be equivalent to the laying of the foundation. For starters, you are expected to save money equivalent to at least six months’ essential expenses (rent, food, clothing, insurance and utility bills) in an instant access savings account. This is a fund that is specifically set up for emergencies.
Once the emergency fund is in place, keep on saving. A great and attainable goal is saving at least 10% of your earnings each month or the much you can afford if your earnings are variable. To get started, aim for 5% and build it up over the months and years till you can comfortably manage to save 10% or more. With the cash deposits in place, then you can begin exploring several investment options that will grow and build wealth steadily.
Investment Goals.
As with savings, it is important to know the specific goals for your investments. Categorize your investment goals into short-term, medium and long-term. Short-term goals are those plans that fall within the next five years. Medium-term goals focus on plans that are to be achieved within the next 5-10 years. Long-term goals take ten years or more.
As you start investing, it is not advisable to begin with the stock market. This is because of the fluctuating nature of stock values which may go up or down in the short term, and chances are you are most likely lose money. For short-term investments, the general idea is to turn savings into interest-earning cash deposits. Other best short term investment options include short term bonds, certificates of Deposits (CDs) and short term bonds.
Stocks are best for longer-term goals. The longer you let the stock investment grow, the higher the chance of making a good return on the investment. Other favorite medium-long term investment options include investing in rental properties, residential housing, bonds, mutual funds, insurance products, company retirement funds and Government-backed securities.