importance of savings and investment

Importance of Savings and Investment

To better understand why it is important to manage correctly the savings and investments you make, we will present to you what happened to the Americans’ finances a few years ago.

This meant that the purchasing power of the leu had decreased significantly compared to the same period of 2017, for example, when the value of inflation was only 0.5%. In other words, the money, in a year, actually lost its value.

When the value of inflation is high, no matter how much you have managed to raise through savings, you can buy fewer things. And who wants to lose money for no reason?

Consequently, we will explain on our pages what you need to pay attention to in terms of personal finances, trying, in this way, to counteract to some extent the devastating effects of inflation.

Why is it so important to have savings?

The well-being of your finances depends, above all, on the way you manage your money.

Each of us must fight to have a financial reserve to which we can turn when unforeseen situations arise, without necessarily having to turn to credit.

importance of savings and investment

We all know that these financial instruments come with interest, so they should be avoided as much as possible.

A financial reserve can only exist by taking certain measures in this regard, having good management of the personal budget and investing.

Below, we will present you some of the most common types of placements chosen by our visitors.

Savings account – the safest wallet

At present, the interest on a savings account is quite low, so it is not possible to say, in the true sense of the word, that you will have any profit from the money deposited.

Banks will use the money to lend to customers or to invest in stocks, bonds, etc. Only a tiny part of the profit will be transferred to you, in the form of annual interest.

Of course, the value of the interest will depend a lot on the type of savings account you opt for, but also on the financial institution you work with.

The great advantage of these financial instruments is that you always know that you have your money in a safe place.

Unlike stocks or any other type of investment, there is no risk of you losing those amounts.

At the same time, compared to the classic option of keeping money on the mattress, you avoid the cases in which certain amounts “disappear” when you have your house looted by a thief or when a calamity happens, such as a fire.

Opening a savings account is very simple, and anyone will be able to do it.

Moreover, the money is guaranteed by the state up to 100,000 Euros per customer per bank. Both you and the bank are protected under EU law.

Term deposit – low profits with minimal risks

A term deposit is ideal for people who do not want to take any risk, in terms of security of their own money.

After the period during which you blocked your money ends, you will be saved the entire amount, plus annual interest, which is indisputably higher than in the case of a standard savings account.

Even if you will not have substantial earnings, this option will be much more advantageous than keeping the money in a purse or a drawer in the apartment.

Tip: currently, no matter which bank you choose, the interest rates on a term deposit will be quite low. Long-term, low-interest investment can be very disappointing.

All the more so when your money is blocked for a predetermined time, as certain investment opportunities may appear along the way that you may not be able to take advantage of because you do not have access to money.

So choose the storage period carefully.

Investments – increase your wealth with their help

In addition to the options presented above, there are other alternative means of investment, which can provide significantly higher annual revenues than these.

Among them, we can list investment funds, the purchase of shares or cryptocurrencies.

You have to be careful, though, because any kind of investment comes with a much higher risk of losing personal money than a savings account or a bank deposit.

The fundamental question you need to ask yourself is, “Is it worth taking the risk of investing, compared to the safety of savings?”.

Is it worth taking the risks with which investments come?

Although there are people who would risk losing all their agony for big potential gains, there are also people who are the exact opposite.

They will be extremely scared by the idea of ​​losing money and would sometimes stay up at night at the mere idea that some of the investments they have chosen can cause them a loss of 1% of the amount they initially entered.

However, they have no problem saving on the mattress, losing, as specified earlier, up to 4.6% in a single year due to inflation.

If we were to make a simple calculation, assuming a more than the reasonable average of inflation of 2% per year, a product that in 2000 would have cost 100 lei, now you would buy it for 150 lei.

Savings accounts or bank deposits will most often not provide enough interest to cover losses caused by inflation.

Therefore, most experts believe that it is much better to hope that the purchasing power of your money will be higher from year to year, investing than to “be sure” of the money in a savings account, which they will certainly lose their value due to inflation.

If you save 10% of your net monthly salary, after a year you will be more than you earn in a single month. That money can be invested to generate higher profits.

Investment funds

Mutual funds are assets that are managed by a company.

If you choose to go for investments in such a fund, you will practically hand over the responsibility of your money to a group of investors. Your bank can represent such a company.

In other words, you can look at an investment fund as an account, in which several people pour money, and then a group of investors to invest them further. The success of their actions will increase your income.

Investments in funds are usually in stocks, bonds and real estate. In general, you will have a choice between several types of funds, depending on whether we call it “your financial appetite” or the risk you want to take.

Depending on the level of risk, there are the following varieties:

  • Low risk, where you can increase your investment by 1-2% per year
  • Moderate risk, where you will have to earn 4-5% per year
  • High risk, which can offer returns of over 10% per year

Of course, depending on the degree of risk, the losses can be commensurate.

Actions

The stock exchange is one of the riskiest forms of investment available.

Experienced investors, or those who are a little luckier than others, can double the amounts they entered, in a relatively short time.

However, the risk of losing large sums is huge.

Risk diversification, in the case of investments in the stock market, is extremely important. Choose long-term investments, combined with fast ones. Make well-informed decisions for a higher success rate.

Cryptocurrency

Currently, there are hundreds of variants of cryptocurrencies, each with a specific, well-defined purpose – to provide a decentralized and secure means of payment that cannot be manipulated by banks and is not influenced by inflation.

Even so, there are cryptocurrencies that do not obey these principles.

By far the most popular cryptocurrency is Bitcoin. The value of Bitcoin is based on the technology of the currency itself, but also the confidence of investors.

In some western countries, you will already be able to find companies that will accept payment for services or goods purchased from them through Bitcoin.

Cryptocurrencies are purchased through Exchanges and are stored in Wallets (electronic wallets). All the action takes place digitally, on the internet.

These types of investments are considered by many to be the riskiest on the market since cryptocurrencies are unregulated and fluctuate constantly.

Before thinking about any type of investment, it is important to understand both the risk and the opportunities that come with each of the investments presented here and beyond. Once you have established these aspects, you can test and see which option suits you best.

How do I start investing?

If you haven’t made any investments yet, it would be best to start slowly. Investments, in general, are not a sprint, but rather a marathon, which requires a lot of planning.

If we were to give you advice, it would be best to start by looking at what investment funds are.

The amounts you have to enter are not large, and, at least for those with a low degree of risk, you will not be able to lose too much money, in case things do not go as you would have liked.

Of course, the choice is yours. All you have to do is inform yourself well in advance. We wish you success!

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