Financial Basics 102: Savings
Updated: Jun 7, 2020
Savings begin when you put aside a part of your income and spend less than you earn. The foremost goal with savings is preservation of capital. Not losing money is more important than growing your money. Typically, savers place their money in some secure, low-risk place. If you ask yourself how to save money, these are considered low-risk options: a dependable bank, cash, physical gold, a savings bond, or a certificate of deposit.
People save because they have a use for the money in the future. They could save for education or to buy a costly item, an expansive vacation, or a house, to pay for a wedding, or even just for a rainy day. Sometimes they save in order to put aside enough money to invest. Most experts recommend having a savings of 6-8 months of your living expenses.
Advantage: Cash allows you to move quickly when needed. You can invest when the right opportunity comes along. If you have a medical emergency or lose your job, you have money to tide you over.
Risk: You could lose cash. Banks may fail. You lose money as your savings typically do not keep up with inflation. You also lose the opportunity to earn income from investing.