Saving vs. Investing: How to think about them differently

BY ANDREW STEWART

The words “saving” and “investing” are sometimes thought of as similar actions, but when it comes right down to it, we should be thinking about them in very different contexts.

Most people would agree that both are very important to the role they play in our lives. If you are not doing either, the best time to get started is right now. To assist you with the mindset you should have and a simple check-in you can do this when deciding on which category you want to put your money into.  A general rule of thumb is we should not save long term but should invest long term. We should not invest short term but save short term. Keeping that in mind, let’s look at some differences.

Saving

An easy way to know what should be considered savings can be broken down into two categories. We should save for purchases and emergencies. Where we get bogged down and lose control is figuring out which vehicle should be used to save. The money saved should be readily available when we need it and have a low risk of losing value. There are tons of methods and strategies you can research to find what works best for you. My personal favorite is the 52-week money challenge. For example, if you are saving for your annual family vacation, you might want to target $5,000 to save in twelve months. You then know how much you need, how much to save each week and the ability to take that money and spend without fear or guilt on that treasured vacation. An added bonus is you avoid the urge to put it on a credit card and creating more debt for yourself.

Investing

When thinking about investing, it’s important to take the time to think and make a plan. Understanding different investment vehicles, what they are for and how to use them will be imperative to being successful. We invest long term, for our children’s education or for our retirement. We use specific vehicles that allow for growth over time. You will have a better chance of success when you invest early and consistently. We can invest monthly in vehicles like an RESP, TFSA, RRSP or alternatives like participating whole life insurance.

Part-Time Trading

Defining a part-time trader can be tricky. Trading doesn’t always follow the traditional trajectory of part-time or full-time employment. Part-time trading refers to trading when you have other obligations, like a full-time job. More importantly, trading is about quality, not quantity. When you’re not trading, you should be educating yourself on potential plays, honing watchlists, doing research, and generally preparing for when opportunities arise. Some benefits of part-time trading is the chance to diversify your career. By maintaining a job while you try your hand at trading, you can use each endeavor to support the other. Part-time trading can also give the freedom to experiment with different types of trading. It rewards routine commitment to researching stocks so your ready when the right trade comes along.

Differences

With investing, we want our investments to make us money vs. when saving, it is to keep our money safe, making very little return. A GIC is a savings tool. This tool is relatively short term, ranging from a few months to many (7 or more) years. While in the GIC, your money is safe and grows at a little bigger interest rate, than in a regular savings account but you do not have access to it until the term is over. Generally speaking, short term is under 7 years and long term is over 7 years but when it comes to saving and investing, do not be too tied into the specific amount of years but more the need of the goal. Keep in mind when you will need funds, what your plan is for the money and the safety/risk associated with it.