Firstly there is cash. Cash is the money we have in our bank account and we want to use this for our monthly expenses. As we discovered from our previous blogs we don’t want to buy on accounts. By setting our monthly budget planner we are able to ensure that we have sufficient funds in our bank account to pay for all our expenses each month.
Savings is a short term investment, where the objective is to save money. This could be an emergency fund or can be savings for a specific goal. For instance, you want to save toward buying a new TV or a nice pair of shoes. This is where you are going to put money away each month until you have saved enough to buy the item you want to purchase.
Time is important to consider here because over time we want your money to keep pace with inflation. That is why we only save in our savings for a short period of time and for a specific goal. If we want our money to grow we will use an investment.
Investments are normally for a longer period of time and the objective with an investment is to grow your money. As we are inclined to make money with our investments, an investment period is normally 3 years and more. To achieve growth we need to take a small amount of risk and time is always important to consider with any form of investment.
If we look at investment risk and return, the general rule of thumb is that the higher the risk the higher the return and vice versa. It is important to remember however there is no magic investment and often that which is too good to be true, often is.
Time is another key aspect to consider, generally the more time we have to invest the more risk you will be able to take.
Short term savings often have low risk, and the longer investments will target higher returns by taking more risk, even though there will be ups and downs over the long term, you can expect a smoothing effect between periods of negative and positive growth that should favour an overall positive growth over the longer period.
Author Ben Charlton
Edited by N Du Preez (Business Internet Marketing Solutions)