Difference between saving and investing
Saving and Investing both include money you put aside for future use. Two key differences between saving and investing are the time period you put the money aside for and the amount of risk you are willing to take.
Savings are typically used for a short-term goal (i.e. saving for a vacation next winter) and usually involve little risk. People will put money into a Savings account, with a goal of preserving their money vs. a goal of maximum growth of their money.
Investing implies a longer-term approach and a way to make your money appreciate for long term financial goals. For example, one may invest for retirement or college with both a specific date and dollar amount in mind.
Don’t put off investing because you think you need thousands of dollars to start. One key to building wealth is to develop the habit – regularly put away money each month (no matter how much!).
3 Ways to Start Saving and Investing
- Try the Piggy Bank Approach
- If you have never been a saver, start by putting away whatever you can into a piggy bank or cookie jar. If you can save just $10/week, it will add up to over $500 for the year ($10/week x 52 weeks). If you think you may not have $10/week to spare, think about what you can cut out of your weekly habits? i.e. eating out, coffee, going to the movies.
- Use an App Based Piggy Bank Approach
- If you don’t want (or trust yourself) to stash cash in your house, there are plenty of app based options to help you start saving/investing with just a few dollars.
Digit is a free app that analyzes your spending habits and will automatically make small transfers from your checking account to your savings account.
Money Under 30 did a great review of Digit on their website:
Acorns is an app that will help you invest your money right away by rounding up your credit and debit card purchases and investing the difference. For people who are unsure about investing, Acorns makes it easy to get started.
Finance Gourmet did a great review of the app here
- Enroll in your Company’s Retirement Plan
The earlier you enroll in a 401K the better, but it is never to late to start enrolling.
- First, determine if you employer offers a 401K (not all do). If they do, then sign up and start putting away a % of your paycheck. I typically put away 4%-15% depending on my income and situation.
- Your 401K contributions are tax free. The money is put aside with each paycheck before you pay taxes (and thus, lowers your overall taxable income). FYI – you will be taxed when you withdraw the money from the 401K account.
- Second, if your company matches a certain % of your 401K contribution, take advantage of it. Companies will often match up to a certain % of your contribution. This is essentially free money, so be sure to contribute up to the maximum of your company’s 401K match (if you can).
- Third, understand what to invest your 401K contribution in. Most plans have set mutual funds that you can choose to invest your 401K $’s in. They also sometimes offer professional help when choosing funds. Take advantage of this.
Looking for more advance Investing Options? A Do-It-Yourself investing guide will be the topic of a future blog.