Cash saving vs investing
There’s a time and a place for cash savings and a time and a place for investments. One of the key distinctions between each is your timeframe. Typically, savings are great for short-term goals within the next 5 years, and investments are great for medium and long-term goals with a timeframe of longer than 5 years.
What do I need to do to start investing?
When it comes to financial planning, it’s important to make sure you’ve cleared your high-interest debt (like credit card debt) and have built an emergency fund of at least 3 months’ worth of salary before you even think about getting started with investing. The reason for this is so that you don’t need to access your investments at a bad time due to needing cash for an unexpected cost or emergency.
Once you’ve built up your emergency fund, you can consider your other plans and goals and the timeframes for each.
The long, the short and the in between
For short-term goals that you plan to do within the next 5 years, such as holidays and house renovations, it’s important to have easy access to your money. The best way to do this is to keep that money in a savings account. Find out more about the different types of savings accounts here.
Interest rates can vary between banks and building societies, so do a bit of Googling and find the savings accounts with the best interest rates available to you. Easy-access savings accounts give you easy access to your money whenever you need it, but you might not be getting the highest interest rates. Fixed-term savings accounts can give you higher interest rates, but you’re usually committing to locking away your money for a certain amount of time. So it won’t be as easily accessible to you if you need it.
For medium and long-term goals where you don’t need to access your money for the next 5 or more years, it’s important to consider investing so you can aim to beat inflation. Savings tend to lose value due to inflation, which reduces your buying power over the long term. Investments can go up and down, but tend to yield higher returns over the long term. Investing can also help give you more financial independence in the future as it can supplement your savings and pension.