If you are thinking about building a foundation for your financial future, an important question to ask yourself is “When should I start investing?” You’ve probably already been saving, and it is always a good idea to save to invest but knowing exactly when you should transition from saving to investing can determine how successful your finances are further down the line.
Knowing the right time to transition from saving to investing is crucial to achieving your long-term financial goals. Of course, saving provides some security, but investing offers growth opportunities that can significantly increase your wealth over time.
Here we take a look at the ideal circumstances where you should really consider starting to invest.
Before you save to invest, you must first ensure you have a financial cushion for personal expenses and emergencies. Investments often require a significant initial outlay, and tying up too much money in investments can leave you financially vulnerable if an unexpected expense arises.
So when should you transition from saving to investing? One answer is after you’ve established a solid buffer for personal emergencies, with an emergency fund that covers three to six months of living expenses.
Investing is inherently risky, and with every opportunity for growth comes the chance of loss. Therefore, it’s important to assess your risk tolerance before you save to invest. Some investments - like stocks, for example - can offer high returns, but they are also volatile. If you're asking yourself, “When should I start investing?”, the answer depends on whether you're comfortable with the potential ups and downs of the market.
If you have an open attitude to risk and can handle market fluctuations without panic, then you may be ready to transition from saving to investing.
While saving money in a bank account is safe, it’s not the best long-term strategy for building wealth. Inflation erodes the value of cash over time, meaning that the money you’re saving today might not have the same purchasing power in the future. However, investing allows your money to grow over time, helping you to stay ahead of inflation.
When should you transition from saving to investing? Once your financial priorities are in order, and you’re no longer satisfied with just preserving your wealth but want to make it grow and work for you.
Your financial goals will play a big part in deciding when you should transition from saving to investing. If you have short-term goals like buying a car or a house deposit, it may be better to keep your money in savings where it’s easily accessible and safe from market volatility.
However, if your goals are long-term, such as retirement or building wealth for the future, investing can offer higher returns that will help you reach those objectives.
To find out more on how to invest your money in a way that will benefit you and grow your wealth, get in touch with ASSETONE today!
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