In this post, we will answer one of the most common money management questions that people have: “Is it better to save or to invest your excess money?”
The answer to that question is actually very simple. You do both!
Is it better to save or to invest your excess money?
When you are in the position to put a certain amount of your income aside each month, the first thing you do is to create what’s called an emergency fund. An emergency fund is money that you put aside in case of emergencies such as unplanned home or car repairs, unexpected medical bills or in case you lose your job and need money to hold you over until you find new employment.
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What exact amount should be in your emergency fund is something that personal finance experts fail to agree on. The general consensus, though, is that it should be a minimum of $1,000 to cover basic unexpected expenses such as repairs. However, for more peace of mind, especially if you don’t feel very secure in your current place of employment, it would be wise to have up to three months salary in your emergency fund. At the end of the day, it is up to you and how much you feel you need in your emergency fund to have the right level of financial peace of mind.
Once you have created and filled up your emergency fund, it is time to invest any excess money you have saved up. The money on your savings account will return you only small interest due to Australia’s record low interest rates. Hence, you need to invest in financial assets such as stock, bonds or property. You can either put small amounts of money into a portfolio composed of stocks, bonds, and other securities each month or save up for the down payment on an investment property. Both these investments will yield strong returns long-term and are steps towards a higher net worth and towards financial freedom.