The answer to the question "how do I decide if I should save, invest or both?" is extremely personal and depends on your current financial situation, your goals in life, and your plans for your future. Thus, you need to be able to answer some questions about yourself.

How to

You need to do some financial soul searching and answer these questions:

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So, how do you decide if you should save, invest, or both? IT DEPENDS! The answer depends on when you will need the money, your goals, and the level of debts. For instance, if you are saving for retirement and you have 35 years before you retire, you may want to invest a higher portion of your earned money in risky products with a promised high return. A frequent mistake people make is putting the money they will not need for a very long time in savings that pays a low amount of interest. On the other hand, if you are saving for a short-term goal, five years or less, you do not want to choose risky investments; this could lead to the possibility of having to take a loss on it when it is time to sell since investments often move up and down in value. In this scenario, savings can guarantee you the amount you will have after 5 years time.

Practice

Now that you know that making a decision to save or invest totally depends on your situation, savings goals and your accepted risk level, think of paying it forward and discuss how to select the right instrument or product for yourself with a friend or a family member.

Congratulations! You can move on to Chapter 3. What is risk assessment? What is risk versus return?

To review the full module on Saving & investing, click here.