There’s a big difference between saving, investing and speculating. But do you know them?
Saving is for a predefined goal and figure. Such as building an emergency pot of 6 months expenses, your next (well deserved) luxurious holiday, christmas, a new car, a house deposit etc.
And it's usually within a short time frame. Up to 5 years. Basically, it’s short term so you don’t want to be taking risks, just put it in a bank account.
Investing is also usually for a pre-defined goal, but one that's further away - something like your retirement or education for your children.
But the figure isn’t as set in stone, yes you know what your ultimate goal is but whether it's for financial independence or your littles ones uni fees the end cost may vary. Has inflation been lower or higher than you calculated? Do you need more income in retirement than you initially anticipated? Does your son now want to do a gap year before they start Uni? Do they want to go to Uni at all?
It’s putting money away and building a pot for your future self and lifes uncertainties, good or bad. It’s for a period of 5yr plus and it’s investing into something that will give a natural income, such as rental from a property or dividends from shares, whether this is to be reinvested or not is down to your personal circumstances. It's also to ensure that over the long term your money isn't eroded away by inflation, simply keeping money in a bank account long term is bad for your money, for every year it's left its value decreases.
Then you have speculating, this is buying something that has no form of natural income and gambling on whether the price will go up or down. I'm talking about commodities like gold, or most cryptocurrencies like bitcoin. It’s only worth as much as some other fool is willing to pay for it.
If you hold it for 10 years it’s going to do nothing for you unless you can find someone to buy it from you for more than you initially paid. This also applies to property that you do not rent out, as it’s just sat there, costing you money to run. Obviously this doesn’t apply to your home, as you need somewhere to live.
And there you have it, saving, investing and speculating. Know the difference between the three and definitely make sure you’re doing the first two.
Thanks for reading,
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