Most of us begin our financial lives as savers.
Our first money goals are usually simple: put something aside for a holiday, build a deposit for a car, create an emergency buffer or save towards a home. Saving provides something enormously valuable — security and choice.
But somewhere along the financial journey, a different question often begins to emerge.
Instead of asking, “How much can I save?”, we start asking, “What could my money achieve over the next 10, 20 or 30 years?”
That is often the point where a saver begins thinking like an investor.
The Saver: Protecting What You Have
A saver generally places greater importance on certainty, accessibility and preserving capital.
Money sitting in a savings account, term deposit or similar cash-based option is usually easy to understand and relatively accessible. This can make saving particularly appropriate for short-term goals and emergency funds.
The Australian Government’s Moneysmart website describes an emergency fund as money set aside for urgent or unexpected expenses.
Saving therefore isn’t something you necessarily graduate from.
Even experienced investors may continue holding cash for emergencies, upcoming expenses and shorter-term objectives.
The key limitation is that saving alone may not always provide the level of long-term growth required to achieve bigger financial ambitions.
The Investor: Accepting Risk for Opportunity
An investor takes a different perspective.
Rather than simply protecting money, they are prepared to accept some uncertainty in pursuit of income or capital growth.
Investments might include shares, managed investments, property, superannuation investment options or other assets. Different investments carry different levels of risk, potential return and accessibility.
Importantly, investing isn’t simply about chasing the highest return.
Moneysmart recommends considering your financial goals, investment timeframe and tolerance for risk when developing an investment plan.
That distinction matters.
Money required for a holiday next year has a very different job from money intended to help fund retirement in 20 years.
Think Short, Medium and Long Term
One useful way to look at money is to give every dollar a timeframe.
Short-term goals might include holidays, emergencies, renovations or replacing a vehicle. Accessibility and certainty may be important.
Medium-term goals could include paying down debt, helping children, building wealth, changing careers or preparing for a significant lifestyle purchase.
Long-term goals may include retirement, financial independence, estate planning or creating an investment portfolio designed to provide income later in life.
As the number of goals increases, financial decisions can become interconnected.
Should you repay the mortgage faster or invest? How much cash should you retain? What level of investment risk are you comfortable accepting? Should additional money go into superannuation or remain accessible outside super?
These are no longer simply questions about saving versus investing.
They are questions about strategy.
When Does Professional Advice Kick In?
There isn’t necessarily a magic dollar amount where someone suddenly needs financial advice.
The trigger may instead be complexity.
It could be when your income increases, you receive an inheritance, start a family, establish a business, approach retirement, accumulate investments or simply realise that several financial goals are competing for the same pool of money.
A qualified financial adviser can help you understand your circumstances, identify goals and develop a plan designed around them. Moneysmart notes that a financial adviser can help establish financial goals and create a plan to work towards them.
That is where advice can become empowering.
It isn’t necessarily about being told which investment to buy.
Good advice can help answer the bigger questions:
What are you trying to achieve?
When do you want to achieve it?
How much risk are you genuinely comfortable taking?
What compromises might be required?
And perhaps most importantly — is your current financial behaviour actually taking you towards the life you want?
You Can Be Both
Being a saver and being an investor are not opposing philosophies.
A strong financial position may involve both.
Saving can provide resilience for today. Investing can create opportunities for tomorrow. Professional advice can help connect the two into a strategy that considers the short, medium and long term.
Ultimately, the objective isn’t simply to accumulate more money.
It is to understand what you want your money to do — and give yourself the best opportunity to make those goals possible.
This article contains general information only and does not take into account your personal objectives, financial situation or needs. Consider seeking appropriately qualified professional advice before making financial decisions.
If this article has inspired you to think about your unique situation and, more importantly, what you and your family are going through right now, please get in touch with your advice professional.
This information does not consider any person’s objectives, financial situation, or needs. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation, or needs.
(Feedsy Exclusive)