Save Money

Is it good to Invest or save Money?

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If we are lucky enough to have some extra money available to either save or invest then we may wonder which is the best option for us. There are some big differences between saving and investing and it is wise to know what the differences are so that you are sure you are making the right decision.

Return

With a savings account you are unlikely to get a very big return on your money. You will usually get a few percent lower than the prime rate or if you are happy to tie the money up for a while you might get a bit more. You may get a bit more than inflation but this will depend on whether you find a good rate or not and whether you tie the money up or not.

With an investment the potential return can be greater. The money is used in a very different way. Instead of being given to a bank for them to lend to others and in return they give you interest, you will actually purchase things with the money. This could be stocks and shares, parts of a company or even artwork. The money invested will increase in value if the items that are bought with it are deemed to be more valuable. The amount they increase will therefore depend on what is invested in.

Risk

With savings the risk is very low. The money that you put into the bank should be safe and you will be able to get it when you want it. Some types of savings are higher risk than others but they are still generally all very safe. The chances of you not being able to get your money back is very low. There are some accounts such as government bonds that will be even safer.

With investments there is more risk. The item that you buy may go down in value and therefore if you want your money back you may find that when you sell it you get less back than you put in. There could even be a risk that there will be no value at all. With some investments there is even a risk that you will have to pay out more money than you have originally invested. There are different levels of risk with different investments though. This means that you should be able to choose an investment that carries a risk level that you are happy with. It is often the case that you will find that the lower risk investments will not have such a high return as the riskier ones. This means that you have to decide whether you are prepared to take a higher risk in order to get a better return or whether you would rather take less risk and have a lower return. Many people would consult with a financial advisor so that they can get advice as to what different investments are like and what level of risk they have.

Term

With many savings account you can keep the money in for as long or little time as you wish. In an instant access account you can draw it out at any time. With some accounts you may have to give notice that you will be withdrawing it or even tie the money up for several years. However, these are still short-term arrangements.

With investments you might be able to sell the items as soon as you wish. However, there may be fees associated with this and so if the investment has not grown in value very much, it may cost you too much to cash it in, as you may end up getting charged more than the investment has gained in value. In fact, when you make an investment it is usually advised that you hold onto it for at least five years if not ten or more to make sure that it has sufficient time to increase in value. The value is likely to fluctuate up and down over time by a small amount so by leaving your money invested for the long term, you will be able to get past those small fluctuations and hopefully see it rise significantly. Of course, there is always a risk that it may go down rather than up.

So, although the terms savings and investments can be used interchangeably at times they are very different. You will need to be prepared to lock your money up for a long time if you want to gain significantly from an investment and you will take a risk and may not gain anything. With savings you will not gain so much but you will often be able to get your money immediately and there is very little risk. Therefore, with an investment you should be using money that you are prepared to lose, whereas with savings you can be surer that the money will be safe.

College

Should All Families Have a College Fund?

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If you have children then you may hope that one day they will be able to go to college. Obviously, there are lots of advantages of doing this but one big problem is the cost. The cost of going to college is high and so it is always worth families thinking about how they will manage those costs. One option is to have a college fund.

Advantages of a college fund

Having a college fund will mean that you will have money available to help out your child when they go to college. There will be money available for the to be able to use towards the costs of college, whether that is the fees or the costs of living away from home or both. Having money already available in a pot means that there is less of worry when the money is needed as it can be drawn from. This will also allow the child/ren to know that they have something to work towards. If they feel that with no college fund there will be no college, they may not feel so much motivation to work hard at school as they will have no further education afterwards.

Disadvantages of a college fund

To get a college fund you will need to pay money into it. This would usually be done on a regular basis form when the child is born. This means that you will be using a chunk of your income towards doing this which could alternatively be used elsewhere. It might mean that you will have to go without other things and this could make things tight. You might even feel that you will have to borrow money to make ends meet so that you can continue to do it. It is worth applying some common sense and only saving what you can afford and hope that any times when you are struggling to put money in will be outweighed by the times when you are easily managing to put money in and feel that you can even pay in a bit extra.

Alternatives

It is worth knowing that there are alternatives to having a college fund so that you can consider these as well. These might be useful for anyone who has left it too late to save a significant amount or if they just did not have the money to be able to save. Firstly, the student might be able to get a payday loan for the course and manage that way. Student loans tend to be repaid over a long period of time once the course ends and therefore should be easier to manage than standard loans. It may also be possible to get a scholarship or bursary depending on whether the student can qualify for these. It is well worth finding out what is available and whether there is something of interest and use. It could be that attending a local college and remaining living with parents could be a much cheaper option. Then parents can continue to pay living expenses, if they agree to and the student will only have to find the money to cover the course fees. The student could do a part-time job while studying to support themselves. They might be able to study full-time and work-part time but this will depend on the demands of the course and they might find that they will have to study part-time in order to fit in work as well. Another possibility is that parents might be able to support the student themselves even without a college fund. If one parent was not working when the child was living at home or only working part-time they could get a job and give the money to their child to help them to cover all the costs that they will have. Some parents may not be in a position to do this; perhaps because they need the money themselves or cannot work, but it is a possible solution for some.

It is well worth thinking about your options, both when you first have a child and then later in their lives as they start to make decisions about their future. If you have a college fund and they do not go to college you will still be able to use the money for other things such as towards their first home or you could just use the money yourself. However, without a fund it might be trickier for them to manage and you may not be in a position to help them. The more children you have, the harder it will be for you to be able to afford to support them. This means that you will need to think harder about how much you might need to save each month and how early you want to start. The earlier you start the less you will need to save each month and the easier it will be to get a significant pot of money together by the time it is needed.