One of the most important aspects of adulthood that every young adult should know is the value and importance of saving. The responsibility that comes with working hard and spending responsibility comes with when to save and when to spend. While, in short, investment gives you financial stability in the later years, there is much more to that.
If the discussion of investing vs savings is a bit confusing for young adults, you should read this article. In this article, we share as much financial advice for young adults as possible, so let's begin.
Why Investing Early is Critical for Financial Stability
Let's discuss some essential understandings about investing vs savings. Then, we move on to different factors that make financial stability so important.
Key Understanding Points
Work with Responsible Adults – This article doesn’t imply that teen years are the best time to start investing. Instead, they should be involved in these matters with parents or guardians. Furthermore, they should even spend some time with professionals who work around investment and savings.
Time to Mature – The best aspect of investing at a young age will give the investments time to grow and mature. Young adults will genuinely benefit from this investing vs savings teachings. It helps them save when they actually need the money they earn this way.
Age-Specific Platforms – There weren’t many platforms that allowed young adults to make an investment portfolio. That isn’t the case anymore as more and more apps and platforms tailor their services to teens under the supervision of their parents.
What is Saving?
To understand the whole debate over which of investing vs savings is best for young adults, we need to understand each. Let's start with what is saving.
Typically, saving means setting aside some cash for the rainy day as an emergency fund. In terms of financial advice for young adults and in general, we refer to savings accounts where you set aside some money and earn interest money every month. People typically do this to have an earning on the side, which compounds the longer they keep it. You can use it for pleasure, higher education, buying a house, etc.
No matter what you choose, saving can be categorized into two broad categories. One is to achieve short-term goals and aspirations, while the long-term approach is where you reap the benefits when you really need them.
Pros of Saving
- You provide yourself with a safety net for your future and are set for anything unexpected happening. Saving yourself from loss is a big concern.
- The risk of losing your earnings is very minimal, and you are all but assured profit over several years.
Cons of Savings
- If you don’t invest in potential opportunities, you may miss out on higher returns even though it may be a risky move.
- Sometimes inflation causes your savings money to lose its worth faster than what you gain from interest.
- The yields are pretty low and may require a considerable amount of money to make it worthwhile.
What is Investing?
Investment involves purchasing different bonds, stocks, etc, and selling them to earn money when the time is right. After earning a profit, you again invest some money the same way and wait for a better deal. Similarly, investing in a property or real estate can also earn you more money as the value of the establishment increases over time.
The reasons behind investing money in different portfolios can be the same as savings, such as some we mentioned above. The only difference is that you have to take risks, which may eventually earn a lot more than you would get from savings.
To minimize the risks involved, you can choose investment opportunities that align with your goals and that you understand what the risks entail. Sometimes, you never know how the market turns, and you end up losing more than you bargained for.
Pros of Investing
- You have a chance to earn higher returns than savings.
- You can reinvest every time you earn profits and compound the first time you invested money into a more significant capital.
Cons of Investing
- Some level of risk is always involved as it revolves around the rise and fall of the market.
- There is no guarantee to make profits; you may even lose all of your investments.
Best Time to Save or Invest
Now that we have gone through the basics of investing vs savings discussion, let's gain an overview of when you should invest and what is the best time for savings.
Start Early
The time is on your side; as you are young and have more time to grow, investing is the better choice. You can learn about how investment works, which bonds are best, and understand how investment portfolios work. You can play around the playfield and have time to recover if you make a wrong choice.
By making good choices, you can substantially grow your capital and save for your long-term goals. As savings require higher capital to get more yields, an investment approach early on is the best bet.
Define Goals
If you have short goals, such as saving for a semester or a laptop for your studies, typical saving is enough. You can also learn and save higher amounts, go for investment. If you have a higher capital and want to set aside a reasonable amount, the savings account is better as it involves less risk.
The Bottom Line
In the end, it is all about having financial stability, and therefore, one isn’t better than the other when discussing investing vs savings. As long as they are aligned with your goals and you know what you are doing, you can definitely choose one over the other.
