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What is the Difference Between Saving and Investing?

What is the Difference Between Saving and Investing?

September 28, 2021

A key concept to understand as you work to secure your financial future is the difference between saving and investing.

When I work with clients, I am always a fiduciary. I’m an advocate for my clients’ best interests at all times. So, we often talk about savings AND investing priorities. I help clients clarify savings needs and investing needs.

The KEY DIFFERENCE between saving and investing is timeframe.

What is Savings?

  • Money you know you will need on a date certain within 24 months.
  • Money you MIGHT need in the event of an emergency.
    • Major home equipment failure, like furnace, roof, refrigerator.
    • Disruption of income from job change or illness.
    • Car wreck.
    • Medical emergency.
  • Money that should be very safe. No chance that the principal amount deposited would reduce in value.
  • Money that should be very liquid. Easy to get at on very short notice, within minutes or hours.
  • We are willing to receive an interest rate near the inflation rate in exchange for safety of principal and liquidity.
  • Usually sits in a bank savings account.

What is Investing?

  • Money you do NOT plan to spend for three years or more.
  • Money you NEED to see grow faster than inflation.
  • We are willing to accept temporary fluctuation in value of the investment in exchange for faster growth over time.
  • Could be sold on any day. Could have cash within 5 business days. On short notice, might not receive the full principal amount.
  • Usually held in a brokerage account.

Every family SHOULD have both savings and investment.

Saving vs Investing

How Much Should I Save?

  • You should have three to 6 months of essential bills sitting in an emergency bank savings account.
  • If your work is more volatile and it might take longer to find the next job, you should have 12 months of essential bills in savings.
  • You should also be SAVING 20% of your gross pay for retirement. Send this money to your company sponsored retirement account or to a self-directed IRA for you and for your spouse.
    • 2021 IRA limits:
      • All tax workers = $6,000 each per calendar year.
      • Those better than age 50 = $7,000 each per calendar year.
    • 2021 Employer Sponsored Plan limits:
      • All tax workers = $19,500 saved from your pay each per calendar year.
      • Those better than age 50 = $26,000 saved from your pay each per calendar year.
      • Some employers match your savings with additional money. (Ask your HR manager for details.)
      • Some employers add a profit-sharing contribution to your account. (Ask your HR manager for details.)

How Much Should I Invest?

  • Like I often say, this depends on your goals.
  • Invest all your retirement savings (20% of your gross earnings) into stocks of great American companies. A low-cost S&P 500 fund is a great start. You will not need this money for many years. You want to get all the growth the market will provide. (Historical return of the S&P 500 for last 100 years with dividends reinvested is 10.87% per year.)
  • If you have other long-term goals (three years or more) that money should be invested.
    • Savings for college expenses in 10 years.
    • Saving for a winter home in the sun during retirement in 15 years.
    • Savings for the world cruise on your 50th anniversary in 20 years.

If you are like most families, you have some questions and would benefit from some guidance as you set savings and investment goals. That’s a what a CERTIFIED FINANCIAL PLANNER™ professional is for. With great training, years of experience and a commitment to the clients’ best interests, a CFP® professional can be a huge help.

If you would like to talk with me about your savings and investment goals, I would be honored to be of service. Follow this LINK to find a time for us to talk.

To find a CFP® professional near you, start your search here.

As you visit with financial planners, I suggest a couple things to check:

  • Is the advisor always the client’s advocate – a fiduciary advisor?
  • Is the advisor paid by clients, not financial product manufacturer or distribution network? That would be a fee-first advisor.

These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.

A fiduciary, fee-first, CFP® professional can help you make great retirement income choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.

Yes, I am a CFP® professional. I’m always a fiduciary and I work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.

If this article has you thinking about your own circumstances, contact my office at I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.