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Next-Level Financial Freedom: Saving vs Investing

You may prefer one over the other but, you need both to obtain wealth.

By TheBusinessPeriodPublished 8 months ago 3 min read
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On many occasions, I've heard different perspectives on which financial method is the best for your money: investing or saving. Savers will say, "Investing is not smart because you'll lose your money." An investor's rebuttal, "You cannot save your way to financial freedom. It's pointless to save cash!" 

So which side is right? To me it's simple: Neither of them is right because you need BOTH to maximize the success you'll have at achieving financial freedom. In my eyes, you cannot have one without the other. One will keep you stable in the present, the other keeps you stable for a lifetime. Let's take a look at each financial method!

When to prioritize saving

My responsibility as a young adult is to make enough money that will help me upscale my life. A task on my 5-year plans: Save enough money to move out of my parents' house! A pretty common reason to save your money. Other common reasons are car maintenance, vacations, and emergency funds. So what is the motive for saving? Before answering that, let me give you a financial stat. Did you know that only 44% of Americans have enough savings to cover a $1,000 expense? Also, think of it as 56% of Americans cannot cover a $1,000 expense. It's a scary reality knowing you need money to keep you afloat but don't have enough of it. 

Let's say after four paychecks, you kept $1000 to invest in the stock market. That money is a good start to beginning an investment journey. But what if your car broke down and the repairs plus labor costs amount to $1000? You won't have the money after getting paid. You don't have savings. What's the other option? Selling off your investment you might say will do. But here are the roadblocks. Your investment value could've decreased, meaning that $1000 has declined to $820. Depending on how you invested, you may have to pay a management fee for withdrawing your money so soon. Where does that leave you? Not enough money to pay the car bill, a loss in investment, and an overall financial setback!

It's vital to save a portion of your money because it lays the basic foundation of money management. For short-term goals like saving for a down payment on a car or moving to another city, saving is a priority! 

When to prioritize investing

Rome wasn't built in a day and neither is generational wealth. Imagine that for 25 years, you've saved $10k per year. $250k is a good bulk of cheddar. But what would the $10k a year look like when invested properly? Let's take a look:

Bankrate Investment Calculator

Using the Bankrate calculator, I took the savings total example and placed it as an investment goal. The initial investment of $10k plus an annual contribution of $10k for 25 years at an 8% return rate, amounts to almost $800k!!! Meaning if you've made consistent investment payments, at the end of 25 years, you're money more than tripled its value! This is where investing becomes your friend. There is nothing wrong with saving your money. However, if you want your future self to have an influx of money in a shorter time, investing is your MVP! The biggest benefit to investing is obtaining higher returns with lower effort and less time. Smart investing leads to a happier you!

One will keep you stable in the present, the other keeps you stable for a lifetime.

The middle ground

Saving is good. Investing is good. Both are equally important, so how can they coexist? A great rule of thumb is to start a budget. It can be a traditional 50/30/20 budget or zero-based. Both methods are designed to help you manage your money depending on your financial needs. As part of a budget, treat your savings and investments like a regular bill. As soon as you get paid, look over your finances and put things in their proper place. 

Since I started my new job in April, that's what I've been doing! I use a value-based budgeting method and every time I get paid, I spend a few minutes before the workday begins and start moving my assets. I transfer $50/check from my second checking account to my investment account. Then, I deposit between $100–200 into my savings account. It works for me! It keeps me consistent and motivated. So use your time to figure out how you want to balance your money. Find your motivation! When you find what works for you, everything will start to fall in place!

personal finance
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About the Creator

TheBusinessPeriod

Writing about life experiences, personal finance and, career insights that impact the millennials and Gen Z culture.

Twitter:@business_period

IG:@thebusinessperiod

Medium: @thebusinessperiod

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