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Should I save or invest?

If youre not sure whether you should save or invest, the answer is probably both. It all depends on your goals and
your financial situation. This guide covers the basics to help you plan out your finances for short term savings and
long term investment.
Whats the difference between saving and investing?
Who should save?
Are you ready to invest?
A look at some goals save or invest?
Set your savings goals

Whats the difference between saving and investing?

Saving is putting money aside bit by bit, to make a lump sum. You usually save for a particular goal, like having the
money for a holiday, a deposit on a house, or any emergencies that might crop up. Often saving is taken to mean
putting your money into cash products, like bank and building society deposit accounts, and thats how we define
saving in this guide.
Investing is 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?

Everybody ought to have a certain amount of cash savings to hand. The rule of thumb is to have three months
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essential outgoings (things like rent and food) in an instant access savings account. This is called an emergency fund.
The only time you shouldnt save or invest is if there are other, more important things you need to do with your money.
This includes:
Getting your debts under control
Making sure your family could cope financially if you died
Decide whether to save or pay off debts(https://www.moneyadviceservice.org.uk/en/articles/should-i-save-or-pay-off-debt)
Do you need life insurance?(https://www.moneyadviceservice.org.uk/en/articles/do-you-need-life-insurance)
Once you have your emergency fund, you should keep on saving. A good goal is to be putting aside at least 10% of
your earnings each month (or as you can afford it if your earnings are variable).
Aim for 5% to begin with and build it up. You can save up for anything you want, for example to pay for a wedding or to
have enough money to invest in something specific.
Its important to set savings goals so you know what youre aiming for more on how to do this later.

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Are you ready to invest?

As with savings, you need to know your goals to decide if you should invest. Specifically, 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
Medium-term goals are things you plan to do within the next 5-10 years
Longer-term goals are ones where youre wont need the money for ten years or more
For your short-term goals, the rule is to save into cash deposits. The stock market may go up or down in the short term
and if you invest for less than five years you might well make a loss.
For longer-term goals, its often best to invest because inflation can seriously affect the value of cash savings over the
medium and long term. The stock market tends to do better than cash over time. The longer you can leave your
money, the more chance you have of making a profit.
For the medium term, cash deposits may sometimes be the best answer, but it depends on how much inflation risk you
are willing to take, and whether you need a certain sum on a certain date.
You can adjust the level of risks you take when you invest by spreading your money across different types of
investments called diversifying the risks.
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If youre approaching or over 30, you should have at least one long-term goal retirement. Money you put aside for
retirement should usually go into investments. Most people invest in a pension, but other investments can be suitable
too.
Read our guide Diversifying the smart way to save and invest
(https://www.moneyadviceservice.org.uk/en/articles/diversifying-the-smart-way-to-save-and-invest)

A look at some goals save or invest?

Goal

Situation and timescale

Save or
invest?

Buy a new car

Your old car is ready to give up the ghost you need a new one within a year.

Save

Put down a deposit on a

house

Youd like to move in to your own home by the time you start a family maybe in
three years.

Save

Pay for your childs

wedding

Your child is still very young probably at least 15 years away from getting
married.
Your child is older a couple of years away from getting married.

Invest

Youve just turned 30, and youd like to retire when youre about 65 35 years in
the future.

Invest

Have a comfortable
retirement

Save

Set your savings goals

As you can see, you probably have quite a few financial goals. Theyll all have different timescales, which means you
want to do a bit of saving and a bit of investing. Thats why its important to make a plan.
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If your finances are fairly simple, take a look at this guide to see how to set your goals:
How to set a savings goal(https://www.moneyadviceservice.org.uk/en/articles/how-to-set-a-savings-goal)
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.
Complete a money fact find(https://www.moneyadviceservice.org.uk/en/articles/complete-a-money-fact-find)

Rule of thumb
If youll use the money in under five years, save.
If youll use the money more than ten years in the future, invest.
If youll 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.
Previous
How to set a savings goal
(https://www.moneyadviceservice.org.uk/en/articles/how-to-seta-savings-goal)

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