Save and Invest | MyMoney.gov (2024)

FAQs

What is to save and invest? ›

Saving is usually done to create assets with a specific goal in mind, such as saving for a holiday or having money for emergencies. Investing, on the other hand, is about growing assets that you already have, which means managing your existing wealth in the longer term.

If the average dividend yield of your portfolio is 4%, you'd need a substantial investment to generate $3,000 per month. To be precise, you'd need an investment of $900,000. This is calculated as follows: $3,000 X 12 months = $36,000 per year.

Investing provides the potential for (significantly) higher returns than saving. As your investments grow, they allow you to take advantage of compounding to accelerate gains. Investing offers many different access points and strategies, from individual stocks and bonds to mutual or exchange-traded funds.

For many people, the 50/30/20 rule is a great way to split up monthly income. This budgeting rule states that you should allocate 50 percent of your monthly income for essentials (such as housing, groceries and gas), 30 percent for wants and 20 percent for savings.

An easy way to save is to pay yourself first. That means each pay period, before you are tempted to spend money, commit to putting some in a savings account. See if you can arrange with your bank to automatically transfer a certain amount from your paycheck or your checking account to savings every month.

Investing as little as $200 a month can, if you do it consistently and invest wisely, turn into more than $150,000 in as soon as 20 years. If you keep contributing the same amount for another 20 years while generating the same average annual return on your investments, you could have more than $1.2 million.

Saving $13,000 would leave you with $3,000 a month to meet all your expenses—a perfectly reasonable number for many singles, and even some couples. Saving and investing $13,000 a month with a 10% annual return would allow you to become a millionaire in just over five years.

Investing $1,000 a month for 20 years would leave you with around $687,306. The specific amount you end up with depends on your returns -- the S&P 500 has averaged 10% returns over the last 50 years. The more you invest (and the earlier), the more you can take advantage of compound growth.

The 50-30-20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should dedicate 20% to savings, leaving 30% to be spent on things you want but don't necessarily need.

Is saving money worth it? ›

One reason to save is that it reduces stress, allowing you to worry less about things like making rent payments and paying your bills each month. Saving money also expands your options, so you can leave a job you don't like, for example, to search for a better one.

Saving provides a safety net and a way to achieve short-term goals, while investing has the potential for higher long-term returns and can help achieve long-term financial goals. However, investing also comes with the risk of losing money.

Millionaires have many different investment philosophies. These can include investing in real estate, stock, commodities and hedge funds, among other types of financial investments. Generally, many seek to mitigate risk and therefore prefer diversified investment portfolios.

The difference between saving and investing

Saving can also mean putting your money into products such as a bank time account (CD). Investing — using some of your money with the aim of helping to make it grow by buying assets that might increase in value, such as stocks, property or shares in a mutual fund.

Saving is the act of putting money somewhere safe for use in an emergency or for a short-term goal. Investing involves purchasing securities that have the potential to return more than savings over time but also come with higher risk.

If you don't need the money for at least five years (or longer) and you're comfortable taking some risk, investing the funds will likely yield higher returns than saving. If you're eligible for an employer match in your retirement account, such as a 401(k).

The simple rule: If you need the money in the next three years, then save it ideally in a high-yield savings account or CD. If your goal is further out, or you don't have a specific need for the money, then start thinking about investing in something that will grow more, like stocks or bonds.