This is Money

When is the best time to save than invest?


January 20, 2017 | 3:39 pm
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The last quarter of 2016 saw the inflation figures released by National Bureau of Statistics (NBS) going up as high as 18.55% from 18.48% in the previous quarter. If you are a low middle income earner you are probably wondering whether it makes sense to continue saving money.

In today’s economic climate, having a saving account can be a disincentive for because they have such low returns. Since the economic recession was declared by the government, my banks sending are yet to send my dividend payout. Meanwhile I have received bank statements and stamp duty withdrawals ever since. This is despite the fact that interest rates have been maintained at 14 percent by the Central Bank of Nigeria.

Before we proceed, we must note the difference between saving and investing. Saving refers to the act of putting money aside, bit by bit. Often you are creating the reserve for a future purchase, like a holiday, deposit on a home, or cover emergencies that may come up. Your cash reserves should always be there when you need them.

Investing on the other hand is when you take some of your money and put it in a business, deal or transaction with the help of making it grow in value. Your preference may be buying stocks, property in Abuja or Port Harcourt or outside Nigeria, shares, bonds or treasury bills. What you used your money to buy which has good probability of generating a safe and acceptable rate of return over time is known as asset.

A decision for saving or investing in the present economic climate depends on several considerations. The first considerations are your goals and financial situation. According to an expert, saving money should always come before investing. This is because you can only invest on what you have. In essence, your saving is the foundation upon which your investing is built.

The only time you should not invest is when there important and urgent matters competing for the money. For instance, if your debts are getting out of control, then investing should not be an option. The priority at that point should be on getting the debts in control. You will need to eliminate the debt – if not all of it, but as much as possible. Once you are able to rein it, you can begin investing.

Secondly, before you begin investing, consider what is in your emergency fund. If you do not have an emergency fund, start one. Remember, economic situation in the country at the moment is such that major assets are performing very poorly. The stock market is also very volatile presently; hence your emergency fund serves as a buffer for periods like this.

Finally, investing should not be a priority at a time when you are expected to make large expenses. For instance the months when your children are going back to school and you are expected to pay school fees. Settling the fees should be the priority and hence the months before should be savings-driven for that purpose. On the other hand, if you already have an emergency.

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January 20, 2017 | 3:39 pm
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