A key feature of any financial plan will be a strategy to manage cash over and beyond what is needed for short-term saving.
Two common ways of doing this are saving and investing, but these are still not fully understood by everyone. Being clear on how saving and investing are different and also being aware of the basics of investing, makes it much easier to make informed decisions.
Saving is a good habit to get into. It generally involves putting money into a bank or building society account that is largely risk-free and pays a known, although typically low, rate of interest. These types of account can be great for shorter-term plans and for money that you might need to get hold of in a hurry. However, once you take into account inflation (the rise in the cost of goods and services), it is possible that the purchasing power of your money (what you can buy with your savings) will reduce.
That is where investing comes in. Investing for the long term can help you to both save and increase the value of your money.
When considering whether to save or invest your money, it is important to think about the following.