*This is a collaborative post
The majority of us recognise the wisdom of having some savings. We know that life has a habit of throwing up challenges. So, most families save what they can. They work to have enough in the bank to pay the bills for several months, ideally, for a year or more. This is a good goal to have. But, once you have that level of savings it is worth considering whether it is time to start investing as well. Perhaps by taking out a stocks and shares ISA, buying bonds or opening an investment account.
Provided you choose the right investment vehicles, you can make your money work harder for you. Usually, you can make a better profit than you would if you simply left it all in a savings account.
Never tie all of your cash up in investments
Of course, you have to be cautious. With many types of investments, there is a higher risk of your losing some of your capital than if you were to leave it all in the bank. You need to recognise this fact and take that into account when deciding what to do.
For example, most people would not want to invest their child’s university fund. They wouldn’t be prepared to risk that money in any way. Whereas, if they were saving to go on an around the world trip upon retirement, they would be comfortable with investing cash from that fund.
Seek proper advice when you need to
Some investment vehicles are easier to understand than others. For example, when you open a stocks and shares ISA you know your funds are going to be used to buy shares. Basically, the cash you have in that account is going to be used to play the stock market.
Whereas, most people do not really understand how general investment accounts work. If there is anything you are not sure about, do not be afraid to ask questions. It is also a good idea to speak to a qualified independent financial advisor before making your final decision. They will give you impartial, balanced advice and enable you to double-check your understanding.
Think about investing in your home
Don’t forget to consider other investment routes. For example, in some parts of the UK, building an extension would add enough value to your home to cover the cost of constructing it. Also, consider investing some of that money in securing qualifications for members of the family. In the long-term this can be an excellent investment because it can significantly improve their ability to earn more.
Carry on saving
When you do get to the stage where you feel financially secure enough to start investing, don’t forget to carry on saving. You need to make sure that the amount of ready cash you have available keeps pace with inflation. As the cost of living rises, your savings pot needs to grow accordingly.
If you would like a bit more information about deciding whether you are ready to start investing as well as saving, read this Money Advice Service article. It goes into far more detail than I have been able to. Plus, it is written by someone who has formal financial training.