Saving money is a good habit and an important part of an overall financial plan. It provides security, peace of mind, and the ability to handle any surprises life may throw at you. But if your money is just sitting in a regular savings account earning minimal interest, it’s not doing all it could for you. In fact, over time, inflation can quietly erode its value. So, while creating a savings habit is especially important, making sure your money is working hard for you is just as important.
What happens money on deposit?
A standard bank deposit account is low risk and highly liquid. This does make it suitable for an emergency fund or short-term goals, say saving for a holiday. But the returns tend to be very low, often below 1%. This means that over time, the purchasing power of the money on deposit is slowly declining. That means the money in the account today will buy less in five year’s time.
How to make money grow
The key to wealth management is not just about making money but about growing it. This doesn’t have to mean taking huge risks or diving into complicated financial products. It’s about thinking about where the savings are being put and looking at the options to make the money work as hard as possible. These options include investing in the stock market through investment funds. An advantage of this is that the money then benefits from compound interest. That means that the money invested can earn a return of its own. Even when it’s a small amount it has more time to grow.
Why saving makes sense
Saving money plays a vital role in any financial plan. It’s perfect for short-term needs, emergency funds, and of course, peace of mind that you have a “rainy day fund”. It is generally recommended that once there is a sum of 3 – 6 months of expenses easily accessible, all other money should be put to work and not left on deposit.
Overcoming the fear factor
Many people avoid looking at options other than deposits for their savings because they fear losing money. And yes, all investments come with risk but so does doing nothing. As we have explained inflation can have a detrimental impact on money on deposit. There are a wide range of options available at different risk levels depending on an individual’s attitude to risk. The key is to start small and ensure that any investment is diversified.
Next Steps
If you are beginning your investment journey, then understanding these key areas will be of huge benefit to you. At Searing Point Wealth Management, we're here to assist you in building, preserving, and managing your wealth. Our approach blends professional expertise with a personal touch, ensuring that your investment strategy aligns with your unique goals and risk tolerance.
Just contact our team today and together, we can develop a plan that supports your objectives for today, tomorrow, and the future.
