Invest or Save? Why Saving Will Not Make You Wealthy!

Invest or save? This seems to be the number one question for most people when they are just starting out with their financial plan. You hear, "Put your money in savings until you retire" all of the time, but is savings actually "saving" you money, or is it losing you money?

The concept of investing and saving are on the same premise, but it is all about the velocity of money and how that aligns with your goals and dreams. If your money is moving very slowly, it is not helping you become wealthy. If you money is moving faster, you will build your wealth very quickly.

I am going to give you two examples to help you understand which of these types of investments is the best, either to invest or save.

One is a savings program and the other is a solid investment. One is moving quickly and one is not. Knowing which one will make your money grow quickly will show you why you should not waste your time holding your money in a savings account. It has to do with Return on Investment and the Velocity of Money.

Savings

Say you have your two thousand dollars in a standard savings account earning maybe two percent interest (or in numeric terms .02 annually). The bank usually calculates that interest over a period of twelve months or one year (also known as APR - Annual Percentage Rate). That is only 0.00167 per month or less than a half a percent.

Anyway, in one month, your two thousand dollars may yield $3.34 (three dollars and thirty-four cents). Your total earnings for the year for your savings account is $40.45. You return on investment is 40.45 divided by 2000 which equals two percent (2%).

Investing

Now say you invested that $2,000 in the stock market, buying 2000 $1.00 shares of company XBC. Company XBC has a really great year and their stock price soars up to $5.00 per share by the end of the year. You sell your shares and turn your $2,000 into $10,000, or $8,000 of profit. Your return on investment is 8000 in profit divided by 2000 which equals 400 percent (400%)!

Much better than the two percent you earned with your savings account. So, invest or save? Which of the two was working faster for you?

Now, as you look at those examples, you are either getting excited or experiencing a little fear. Why should you invest your money with such risk involved? What are the risks? Well, you may lose your nest egg; you can not control what the market does; you are dependent on the company's performance. You have heard all of these negative thoughts, either from yourself or from others all around you. Why do they really say those things?

Well, most of the people who say those things never tried to invest their money. They are the people who only hear the bad things that happen to investors or have made some poor investment decisions sometime early on in their lives. But all of those things can be turned around and your investments do not have to be risky. The way to mitigate all of these risks is to learn how to read the market, research companies, and add more control to your investments.

The reason most people are afraid of investing and have trouble deciding on the question "why invest or save" is because they do not know anything about investing. They toss a few hundred dollars in the stock market based on hearing something on television or from a friend and the next thing they know they lost it all.

Should you take a chance losing all of the money you invest or save your money so you don't lose anything? Well, when you really look at what you are earning from your savings account, when you pay taxes on that money and think about cost of living increases each year, you are actually losing money, not gaining money from simple savings. If you know how to read a company's financial prospectus and can read market trends, you are going to significantly reduce the risk involved investing in a company's stock.

Should you invest or save? Well, the choice is totally up to you. Do you want to become wealthy and be able to retire some day or simply live pay check to pay check, working for the rest of your life?

The difference between invest or save can mean the difference between retiring in five years vice forty-five years. Do you want to work for money, or do you want to have your money work for you? If your money is sitting in a savings account, it is like having a bunch of employees working one hour a day for you vice the same amount of employees working eight hours a day for you.

Learn more about whether to invest or save by learning the types of investments and understanding some of the advantages and disadvantages of each type of investment out there.

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