We often use the terms “saving” and “investing” interchangeably. But they’re not really the same.
Saving is setting money aside for (usually short-term) future use, like when you save up for a vacation or a new couch. This is separate from your monthly expenses.
While investing also involves setting aside money for future use, instead of placing it in a savings account, you put it toward things you hope will increase in value over time, like stocks or real estate. Because investing is more long-term oriented, it’s better for expenses that are further off, like buying a home or retirement.
How do you decide what money to save and what to invest?
First, you have to sort out your financial goals and determine your timelines for achieving them. Typically, you’d want to save enough money to cover unplanned expenses like car repairs and to cover the bills in case you lose your job. (Advisors recommend aiming to save enough to cover three to six months of expenses.) You also want to save toward goals you’d like to accomplish in the short term—like in the next couple of years. For goals that are further away, investing can be a better option for growing your money more over time.
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