Growing up, money can be a tricky subject to gain a handle on. It is not until a person goes through serious financial woes that they truly begin to grasp the importance of making and having plentiful reserves of money on hand. Even if you are familiar with how businesses stay afloat, making sales and processing payments in order to meet budgetary projections, it is not always so straight forward how to handle one’s own personal finances.
As with a business, it helps to recognize that every financial situation, even your personal finances, operates around a bottom line. The bottom line is to maintain enough money to keep that system in operation. For some people, this means working hard and saving every last penny they possibly can. For others, it means working hard and investing every penny possible, in hopes of earning massive returns on their investments. But this emerging fork in the road of thought compels us to ask which strategy is smarter for ensuring that our personal financial situation remains operational.
When Saving Is Smarter
No one doubts the wisdom of saving up for a rainy day. Preparing for bumps in the road are simply a part of budgeting, so as to not leave ourselves over extended at the worse possible times. When the economy is bad and you are struggling to make ends meet, saving every little bit of money you can to mitigate severe hits to your financial state is imparitive to keeping your head above water. Plus, when you really do not have any additional capital to work with, beyond spending what you have to to cover your bills, saving is not only smarter, it is pretty much the by default state of operation until your situation changes. This is generally not a time when you want to risk what little you have on a shaky venture. However, this may be the opportune time to save just a smidgen of money each month to put towards taking a financial risk later, which may potentially improve your situation. This could be something as simple as saving the change you get from breaking a dollar, putting it in a jar over long periods of time, until you have amassed a little money to experiment with on the side.
When Investing Is Smarter
When you can cover all your monthly bills, and you have begun to amass a pile of money in the bank, this is the time to start thinking of ways to put your money to work for you. If you never take any financial risks with the money you have lying around, then your money will never do anything but just sit there. Sure, you have avoided losing money by tightening your belt and saving everything you can, but this makes your money mostly useless, when it could potentially be earning you a handsome return. The point of having money is to leverage that money to obtain even more money. Researching and applying sound investment strategies is therefore one of the best ways to produce additional income streams, increasing the pile of money you have tucked away in the bank even faster.
It therefore depends on what type of financial situation you happen to be in when trying to discern if saving or investing is a smarter strategy to employ. If you have enough money coming in, it is sometimes possible to take advantage of both strategies to improve your financial situation more efficiently.