Saving money is the cornerstone of all financial success – particularly investing. Having money saved means you will be able to take advantage of a plethora of opportunities, whether that involves going back to university, venturing into the unchartered waters of owning your own business, or buying stocks and shares.
These top tips will help to answer questions such as, ‘How much should I be saving each month?’ and ‘What is are the key differences between investing and saving?’
Saving vs. Investing
You may not know this, but there is a huge difference between simply saving money and opting to invest it.
Both saving money and investing it has a place in your life, however they play very different roles.
How you handle both of them can have major implications for your current and future financial success and stress levels.
Saving a few pounds really can make a difference
Even if you have committed to saving those all-important pennies every month, you may find yourself slipping up and spending a little extra here and there.
You will be surprised how quickly this adds up and depending on your age, this can be a costly mistake.
To make saving money part of your daily routine, you need to ensure that you understand the time value of money.
If you’re a little unsure what this means, it is the concept that £1 today will actually be more valuable than £1 a year from now. This top money-saving tip can help you to transform your balance sheet as you start to free up cash.
How much money should I be saving?
Everyone knows that it’s a smart decision to put saving money at the top of your priority list and if you’re savvy you will always be on the hunt for new money-saving tips.
But, do you know how much money you should be saving?
Most people believe that saving more money is always better. Whilst this is generally true, depending on your lifestyle preferences and income, the amount of money you will have available can be very different from family and friends.
Setting financial goals and investing your money
If you’ve set financial goals for five years or more, putting some money into investments could enable you to earn more money and keep up with rising inflation levels.
An investment is a long way from putting your money inside a bank account for it to sit and earn interest.
Investments are a gamble, there are no guaranteed returns with this option. Someone placing an investment is taking a risk with their money and they could either make a nice amount of profit or they could end up with a horrible loss.
So, investments are something you put your money into with the intention of getting a profitable return.
What kind of investment can I make? There are four main types of investment, these are known as ‘asset classes.’
What are the four main types?
- Shares: this involves buying a stake in a chosen company
- Cash: this refers to savings you put into either a building society or bank account
- Property: this is investing in a physical building, whether it’s residential or commercial
- Fixed interest (bonds): this involves loaning your money to either the government or a company
We refer to profit made from investments as returns. There are a number of different ways you can receive returns, it’s purely depending on the type of investment you choose to make:
- Dividends (from shares)
- Rent (from properties)
- Interest (cash deposits)
Managing investments can take a lot of time and for this service providers will charge you. It can be quite expensive and will eat into the returns you will receive. Before making any investment, you should always discuss the fees with the service provider.
Fees will vary by fund, product and provider so you should always do your due diligence.
We’re sure you’ll agree that no one like to gamble with their savings, however, there really is no such thing as a ‘risk-free’ investment. You will always be taking some risk when you choose to invest, however, the amount of risk varies between different types of investment.
Finding the right investment for you
One of the most popular investment options is a stocks & shares ISA. This is mainly because you don’t have to worry about paying tax on any of the stock market gains you make with this investment opportunity.
You can choose to use all of your £20,000 ISA allowance for this type of ISA or opt to put some in a cash ISA also.
There are a number of popular stocks & shares options currently available. Mutuals like Scottish Friendly are a great choice for anyone looking to invest on a budget.
If you’re the kind of person who likes to check their finances and investments on the go, then you should definitely consider looking into their app, which lets you look at all your plans in one place.