LPL Financial at Liberty Bank Investment Services

Saving is generally intended for goals that can be reached in 5 years or less, such as planning for a vacation or buying a house. Money in a savings account is more liquid/accessible; it may earn a comparatively lower return but is also much more secure.

Investing on the other hand is intended for longer term goals like retirement or a college fund for your children or grandchildren. Funds are invested in vehicles like stocks, bonds, and mutual funds and typically aren’t accessed for decades.

Though traditional savings accounts play a valuable role in an overall financial strategy, they don’t provide the kind of rates needed for building wealth.

For one, you have to consider inflation. Though having “mattress money” or putting all your money in a savings account may feel safe, those dollars can actually “lose value” when inflation rises.

For example, if we experience an inflation rate of 10%, the buying power of $200 would be reduced by 10% to only $180.

So, opting for long-term investing and taking on some risk may also help you keep up with inflation by potentially providing greater returns.

Creating wealth starts with building solid savings habits and putting away money steadily – every week or every month – over a long period. Even $30 each month is a good start, and eventually, you’ll see your account balance increase.

In addition, the earlier you start investing, the more benefit you gain from compounding where interest is calculated on the principal amount you saved plus the interest you earned.

Here’s an example that illustrates why it’s beneficial to start investing when you’re young.

If at age 25, you start with $100 and then put $50 away each month at an annual return of 5.25%, you’ll have $77,832 by the time you retire at age 65.

If you follow the same savings strategy but start saving ten years later at age 35, you’ll only end up with $42,081.88 when you retire.

Time is your friend. Just get started.

Tip: One strategy for painlessly boosting your savings: Each time you get a raise, put a portion of that extra money toward your monthly investing rather than upgrading your lifestyle and spending it.

Investing is a way to diversify your assets by putting money in various long-term investment vehicles in a way that maximizes potential returns and manages risk.

There is risk associated with investing, and returns can fluctuate daily, for example. But when you have a long time horizon, you can afford to take on a little more risk.

Still, it’s essential to know your risk tolerance. Some may be comfortable with risk and choose an aggressive investment strategy that relies heavily on stocks. Others may want to lessen risk and opt to put more money into conservative investments.

It’s about creating balance, weighing risk and returns, and developing a diverse investment mix that aligns with your financial goals.

Almost everyone has debt, but it’s the type of debt you must consider. Some debt is more costly than others.

For example, with their relatively low interest rates, student loans shouldn’t stop you from saving and investing. Making your student loan payments may be something you’ll have to incorporate into your overall financial plan for decades.

But credit card debt is costly because of its high interest rates, making it essential to pay off such debt before you start investing.

Also, for everyone, it’s critical to build an emergency fund in an accessible savings account. One rule of thumb is having between three and six months’ worth of expenses set aside.

Still, everyone’s circumstances differ. For example, if you have dual incomes, three to six months of expenses could be enough. On the other hand, if you’re a single parent with two kids, you may want more in emergency savings.

That money can take care of the unexpected – a car repair, a temporary job loss, or pandemic-related income losses – without upending your long-term financial goals or forcing you to put an emergency cost on a credit card.

No, investing is for people of all ages. But when you’re in your 60s, you have many more considerations to weigh. Among the questions to answer so your financial planner can build a plan tailored to your goals are:

• Are you retired or plan to retire, or will you continue working full or part-time?
• How do you envision spending your time? Do you plan to travel, volunteer, devote yourself to a hobby, buy a second home?
• How ready are you financially to retire? When will you tap Social Security? How much will you get each month? What are all your income sources?
• What will your retirement expenses look like?
• Can all your income sources support your needs and wants?

Another consideration is the shorter time horizon you have for your money to grow. Since you’ll be tapping your money sooner, you’ll benefit from taking a more conservative approach – not putting all your money into stocks, for example.

In addition, you’ll want to determine what to do with your employer retirement plans.

Yes. People’s biggest mistake is not contributing to a 401(k) at work, especially if their employers offer a match. Think of the match as free money.