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Choosing Between Saving and Investing

If not sure whether you should save or invest, the answer is probably both. It all depends on goals and your financial situation. This guide will help to plan out your finances for short term savings and long term investment.

- Difference between saving and investing:

Saving - putting money aside - a lump sum. Usually save for a particular goal, like for a holiday, deposit on               a house, or emergencies that might crop up. Often saving means putting your money into cash products,          like bank and building society deposit accounts.

Investing - taking some of your money and with the aim of making it grow, by buying things that                 might      increase in value, like stocks, property or shares in a fund.


- Who should save?

Everyone who could spare extra money from their expenses should save. Rule of thumb is to have three     months’ essential outgoings in an instant access savings account. This is called an emergency fund.     Important things needed to do with your money: Getting your debts under control and making sure your   family could cope financially if you died. It’s important to set savings goals so you know what you’re aiming for.


- Assess yourself if you’re ready to invest.

You need to know which of your goals are short-term, and which are long-term.

                > Short-term goals are things you plan to do within the next five years - the rule is to save into cash               deposits.
                > Medium-term goals are things you plan to do within the next 5-10 years - depends on how much inflation                risk you are willing to take, and whether you need a certain sum on a certain date.
                > Longer-term goals are ones where you’re won’t need the money for ten years or more - Money put aside or retirement - usually into investments. Most people invest in a pension/optional investments.


- Set your savings goals:

You probably have quite a few financial goals. They have different timescales, which means you want to   do a bit of saving and a bit of investing.

If you have complex finances, with various assets and liabilities, you probably need to do a bit of thinking  about you current situation before you set your goals. You should gather the facts together by doing a    money fact find.


***Rule of thumb

- If you’ll use the money in under five years, save.
- If you’ll use the money more than ten years in the future, invest.

 - If you’ll use the money in between five and ten years, then consider your attitude to different risks, your   investment goal and financial situation. In this situation, it may be suitable that you do a bit of both saving     and investing.

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