By: Elizabeth Hawtin
After last month’s post, I hope you now understand some of the basics of personal finance and financial planning. You know your income. You know exactly how you’re spending it AND you have even saved money in the process. That’s great! Especially since saving is a key ingredient in developing a good financial plan. Now you want some help in determining how to invest your savings.
Awesome- except the phrase “invest your savings” is a confusion of terms. Once savings become investments, they are no longer savings. Using your savings as investments won’t get you very far as an investor. Any financial difficulty that appears will demand cash quickly. You know and can predict your savings and any earnings, while also remaining accessible. However investments, have unclear outcomes. Your timing influences accessibility plus any earnings. Additionally, there are often tax penalties that would restrict accessibility. Savings allow you to always know what you have and when you can get it. In the future, investments will always have an unknown value and accessibility may be limited when you consider past results.
One of the biggest problems is having no cash reserves. Life is full of surprises, good and bad. You need your savings to meet these surprises. Even planned purchases such as: buying a house, car or travel, need cash at the right time.
As an investor, you are in it for the long haul. Making withdrawals from your investments is the quickest way to become an unsuccessful investor.
So how do you avoid this mistake?
Be clear and committed to the time horizons associated with the funds. You must determine what portion of your savings must remain savings. Then you can determine what portion of the savings would remain untouched until retirement.
With low interest rates, many savers dive into investing quickly. They skip saving products and move into bonds or equities to enhance yields. They forget that their savings were meant to be accessible and not only for making money.
So, if you are approached by an advisor or broker, make sure to tell them to not talk to you until you become a better saver!
Need some advice on where to start or where you should or need to be? Receive guaranteed unbiased financial advice to help you figure out your next move with a fee-only financial planner. Check out XY Planning Network Canada to find a fee-only financial planner who suits you: www.xyplanningnetwork.ca.