Saving is usually for a specific short term goal like a holiday or for unexpected emergencies like car repairs, a medical procedure or a new appliance.
Investing is generally to create wealth and to reach bigger long-term goals like paying for your child's education or investing for your retirement. You'd typically invest for a longer period of time, like 10 years, 20 years or more.
Both saving and investing are important aspects of a financial plan. But they're different tools, used for different time periods and different goals. Getting into good savings habits can build the discipline you need to invest for longer periods.
How soon should one start?
The sooner you start saving and investing, the better and also start with what you can afford.
- The longer you invest, the more you benefit from compound growth. Compounding means you make money on your original investment as well as on all the gains made through growth in the following years (that is growth on growth over time).
- It is better to save less for longer than save a bigger amount for a shorter period of time. As an example, if you invest R180 a month for 40 years at 10% it would grow to almost R1 million. But if you only had 20 years, you would have to invest almost R1400 a month to get that same R1 million. And if the long-term saving period is only 10 years, you would have to put away over R5 000 a month!
What are some of the benefits of each?
Saving:
- If you have savings, it can cover unforeseen emergency expenses and prevent you getting into debt and having to pay a lot of interest
- Saving money helps you develop self-discipline and budget responsibly, which makes it easier to take the next step and start investing money
Investing:
- You are able to reach much bigger goals such as starting a business, putting down a big deposit for a house, paying for your child’s university fees or retiring comfortably.
- Investing enables you to create wealth that you can pass on to your loved ones.
Everyone needs to save and invest for a better future. Consulting an accredited financial adviser is a good idea as they can help you put a financial plan in place that takes your circumstances and individual needs into account.
What are some of the interesting facts about saving that most people aren’t privy to?
- People who set clear goals and have a plan to achieve them are more likely to succeed.
- Women are reported to be more responsible savers than men.
What are two ways to be a disciplined investor?
1. Start investing as soon and as regularly as you can. The sooner you invest, the greater your opportunity to grow your investments over time. Time in the market counts.
2. Remember that investing is a long-term commitment. Don’t be swayed by the ups and downs of the stock market, and do avoid reacting impulsively. In other words, keep calm at all times and stick to your investment plan.
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