When to save vs invest

Navigating financial priorities can be challenging, especially when balancing day-to-day expenses, debt repayment, saving, and investing. With rising living costs and stagnant wages, making informed decisions about where to allocate your money is crucial. Here’s a breakdown of when to prioritize saving versus investing:

Savings

A savings account or a money market account are low-risk options that earn interest and are ideal for short-term goals or emergency funds. They are best suited for building an emergency fund or saving for goals within the next two years. With easy access to your money and minimal risk to your principal, a savings ensures you have funds available for unexpected expenses or planned purchases. Aim to save 3-6 months worth of expenses for emergencies in one of these accounts.

High-yield savings and money market accounts typically offer better interest rates than traditional savings accounts; however, be sure to compare options for the best rates. Some institutions will also offer promotional rewards for transferring your money to them!

Investment Account

An investment account is used for investing in assets like stocks, bonds, mutual funds, exchange traded funds (ETF), etc. While investments carry higher risk, they also offer the potential for higher returns. Once you have a stable emergency fund and manageable debt, consider investing for long-term goals, such as retirement or education. A properly constructed investment account can help grow your wealth over time through assets like stocks, bonds, ETF's, etc.

Balancing saving and investing is key. Allocate part of your income to a savings account for immediate needs and emergencies, while also setting aside funds for investments to build wealth over the long term.

Personal Strategy

I often get asked about my own financial strategy. Personally, I allocate 10% of my gross income to tithing (Malachi 3:10), save at least 5% of my net income, and invest 15% of my gross income (including my contributions and company matching). As a Christian, it’s important that my financial strategy aligns with my values.

Your approach may differ, but a good foundation is to consistently save at least 5% of your net income for emergencies and invest at least 15% of your gross income for retirement, considering both your contributions and any company match. If you’re not quite there yet, begin with what you can. Something is better than nothing and it’s important to start and stay consistent.

Understanding the purpose of each account type and aligning your financial actions with your goals, values and your stomach for market ups and downs can help you manage your money more effectively.

To get personalized insights and create a financial plan tailored to your needs, schedule a complimentary consultation. We’ll explore strategies to build your savings and investment portfolio according to your financial goals and values.