People come to me for advice on financial planning. Some are new to careers and want to start early to use their earnings for both short-term and long-term financial goals. Others, with maturing careers, are looking for ways to make sure they have adequate retirement resources. In our discussions of their financial plans, I see that both groups want their money to be safe and to grow.
Saving and investing are both tools for achieving your financial goals. With each, you put your money aside, but there the similarity ends. Each tool has a specific but different purpose and benefit. You need both.
When you deposit money in a savings account, you expect it to be safe. The key benefit of that account is the guarantee that you won't lose any of your funds. Accounts with most banks are insured through the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. Although when interest rates are low, and your balance doesn't grow, you do get a risk-free guarantee that your money is safe.
A savings account is a useful tool for short-term goals, like vacations, household purchases, or emergency funds. If you can maintain a minimum balance that equals 6-12 months of expenses, you gain a sense of financial security and as your balance grows, can avoid using credit for other purchases.
A savings goal is the best way to start, but there is a difference between just saving money and building wealth. When it comes to long-term financial goals, like retirement or financial independence, an investment account may be the way to go. The actual key to building wealth lies in creating assets. There are various investment options, like stocks, bonds, and money market funds that can be used to build your investment portfolio.
Investing entails more risk than adding to a savings account. Your investments can grow and deliver profits, or they can lose value and generate losses. Diversification is an investing strategy in which your money is allocated in different investments and asset classes. By diversifying your assets, you ensure that you won’t lose all your money if one type of investment turns sour. Smart investing and diversifying is not quick or easy. It requires making wise and informed decisions as well as the help of a qualified professional.
Phillips Financial Strategies on Capitol Hill is based on the principle that education and understanding of your current financial situation are critical if you are going to make wise and informed decisions concerning your future financial condition. If you have any questions or concerns about saving and investing or wish to schedule an appointment, please contact us.
Material discussed is meant for general illustration and/or informational purposes only, and it is not to be construed as investment, tax, or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. Diversification and asset allocation strategies do not assure profit or protect against loss.