Why Students Should Start Investing Instead of Saving

While in college, the majority of young people have plenty of stuff going on every day and plenty of academic challenges to get through along the way. In most cases, having nearly 100% of their time busy with studies, students rarely start thinking about their futures and financial stability. After all, they often don’t even have an opportunity to get a job at college.

On the other side, due to the growing college costs and often tight budgets, more and more students start pondering how to gain financial literacy and freedom early on. The only question is how they can do it.

Getting a job is one way to get closer to your financial goals. Of course, this can be tough. Luckily, modern students can always pay for paper on Writepaper.com to reduce their academic load, keep their grades high, and have more time to do their jobs. But does having a job solve all your financial issues on its own?

Not really. In order to ensure future stability and freedom, every student should think not only about how to earn money right now but also about how to create a safety pillow for the future and get cash for their larger goals.

This brings us to the main question – should you do savings or investing?

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Why We Still Cling to Saving

Knowing how to manage your money and save them effectively is an important part of financial literacy. When you need to pay rent, pay off your loans, or handle any other major expenses, most people would say that you should start saving. And they might have a point there.

There are plenty of pros to saving. But, if speaking about it in contrast to investing, we can highlight two major benefits:

  • The amount you keep in your savings accounts will likely not decrease on its own. Most often, it can only decrease if you withdraw money from the accounts yourself. This basically means that this form of budget management is more reliable. That is, you should be able to attain set goals if you are organized enough.
  • Secondly, this tactic is a good way to reach your goals on time. In order to save enough money for something specific in a fixed timeframe, all you need is to put away the proper amount of cash every month. And calculating this is very easy too. Just take the total sum you need and divide it by the number of months you have until your deadline, and you will have the exact sum you want to save per month.

Despite the benefits, there are a few drawbacks as well. Namely, you should never forget about inflation. Inflation makes the value of your money go down every year. Ideally, the interest you earn for your account should make up for that. But, in reality, interest rates almost never keep up with inflation rates.

The second significant drawback is a lower return compared to what you can get with investing. Let’s say a bank can only give you 1% interest on your savings. If you invest, you could earn an 8% return instead. The difference is tangible, and if you want to make up for it, you would have to put more money in your accounts to get better returns.

Does Investing Guarantee a Safe Future

Compared to saving, investing can have more benefits. Namely, it can help you:

  • Invest less. When you are saving, you know that you have to set aside the proper amount of money every month, which can be very draining for your budget. If you engage in investing, on the contrary, you will be able to start with a lower sum and won’t have to put up large sums of money every month to achieve your goals.
  • Grow your initial budget faster. Typically, saving accounts will only pay you monthly or annual interest, depending on the type of account. However, investing lets you gain profit from every successful deal you make, which enables you to grow your budget and achieve set goals faster.
  • Get a higher overall rate of return. Lastly, while saving only lets you get a specific amount of money in interest, the returns you get from investing will compound. Simply put, you will have higher overall returns.

What about the drawbacks? Of course, there are a few as well. Most importantly, this method of achieving your financial goals is generally riskier. It takes knowledge and skill to be able to put your money into different assets wisely, and of course, your investments can also decrease in value if you make mistakes.

Wasted Time, Lost Revenue, Less Customers

4 Reasons Students Should Invest Rather Than Save

So, you already know about the major pros and cons of every method of managing your personal finances. Now, let us give you a few weighty reasons to start investing rather than saving:

You Won’t Lose Your Money to Inflation

As mentioned earlier, inflation can make you lose much of your money and eventually kill your buying power. And the worst part is that if you keep saving for many years, you will inevitably face inflation. However, different assets that you can put your money into can have a good relationship to inflation or be index-linked to it, which means that you will prevent your money from decreasing in value over time.

It Can Turn Into a Real Income

When you keep your cash in bank accounts, withdrawing it most often means losing more than winning. Besides, tiny interest rates of a few percent will never be enough to be considered a real income. Investments are different.

Once you create a large enough portfolio balance, you can gain 4-6% and even more income. With a wise strategy, this income can turn into something you can live off right now, which is a great opportunity for students who can’t do a full-time job to make a living.

You Can Diversify Your Portfolio for Safety

Buying and selling any kind of asset can be risky. That’s true. But, once you start investing, you will never get linked to one specific type of asset. On the contrary, you will have the opportunity to diversify your portfolio balance with different assets and, thus, mitigate the risks. The idea is simple – even if one declines in value, others in your portfolio might go up and make up for the loss.

It Can Make You Enough Money to Retire

Savings can be very helpful for short-term goals. For example, if you want to buy a car for a few thousand bucks, it is easy to put aside the proper amount of money every month to achieve this goal.

However, no matter how hard you try, savings alone are never enough to live the life of your dreams and retire. Investing, on the contrary, can give you a liveable income right now and help you accumulate enough money in your balance for the future.

Although it can be hard and scary to get started, investing has much more to offer you than simply saving. And the earlier you start, the better. So, now you know why it is a better way for students to reach financial stability and freedom.

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