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| Savings vs. Investments |
- Â?SavingsÂ? and Â?InvestmentsÂ? are used in both general & specific senses in financial planning . In general you would consider that..
- Savings are used for Very Short Term or Intermediate Short Term Needs
- Very Short Term needs, generally 3 years or less
- To be used for:
- Emergency Fund (3-6 months income)
- Yearly holiday gift & vacation funds
- Property tax and estimated tax payments
- Longer term goals that you are within 1-3 years of attaining:
- Enrolling in college
- Nearing retirement
- Invested in low risk instruments with guaranteed, but generally lower, rates
- Instruments most frequently used are:
- Savings accounts, passbooks accounts, money market accounts
- Savings accounts, passbooks accounts, money market accounts
- U. S. Treasury bonds (must hold at least 6 months)
- Those with higher risk tolerance might chose Intermediate Short Term type investments, such as those below for short term savings
- Intermediate Short Term Needs, 3-7 Years
- Often used for:
- Vehicles, appliances, expensive maintenance (exterior painting, roofs) that need regular replacing
- Home renovations accounts
- Luxury items
- Extraordinary vacations
- Impending retirement or start of college
- Mildly variable rates, good potential to pay higher rates than short term savings vehicles, low-med risk , can generally access funds in one week or less
- Consider instruments such as:
- Conservative balanced mutual funds
- Conservative income stock mutual funds
- High quality bond & treasury mutual funds
- High quality mortgage mutual funds
- Investments are used for Long Term Goals that are about 7 years, or more, in the future...
- Choose financial instruments with long term returns that are greater than guaranteed rates
- Instruments with higher short term risks but low long term risks
- Well Balanced Stock Portfolio
- Well Balanced Bond Portfolio
- Quality real estate in growing geographic areas that you are quite famiilar with which could be:
- Your own home or homes
- Individual rental properties which you actively or passively manage alone or with partners
- REIT (Real Estate Investment Trust)
- Mutual funds - again
- Stocks
- Bonds
- Indexes
- Exchange Traded Funds (ETFs), etc
- If you want to know more:
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