- “I’m saving for a down payment on a home.”
- “I’m saving for my child’s college education.”
- “I’m saving for retirement.”
These are three very different goals, yet all have been deemed “saving”. Not to get picky, but there’s a big difference between saving and investing. It’s important to clarify which one you’re doing. On this week’s Mullooly Asset Management podcast, Tim and I will help you discern whether you’re saving or investing.
What is Saving?
Saving might mean putting money away for a new car, a down payment on a home, or to remodel your kitchen. We’re talking about shorter term goals when we reference saving. Things that you’ll need to/want to fund in the next five years. These things cost money, but not such large amounts of money that you won’t be able to pay for them with your own savings. Your hope is to achieve these goals within the next five years, so losing any of the money you set aside is not an option. Savings belong in a bank account or money market account.
What is Investing?
Investing includes putting money away for a child’s college education or your retirement. These are longer term goals that you don’t intend to achieve for a while. They can be much more expensive than shorter term goals, so it helps to pay for them with a combination of your own money and compounding interest you earn through market investments. Since these goals are longer term in nature, it shouldn’t be an issue to experience some market volatility along the way.
It’s crucial to determine whether you’re saving or investing. Investing money in the market that you’ll need in the immediate future can lead to disappointment and unexpected surprises. Money for shorter term goals is almost always better off in a bank account or money market account. Money for longer term goals can be invested in the market for growth.