Savings vs. Investing…What’s the difference?

In my last blog I referenced the terms Savings and Investing and asked if you knew what the difference between the two are. Each have very different meanings, uses and maintaining a balance between the two, will help you reach your financial goals.

Before we get into looking at the differences between saving and investing, let’s agree that daily expenses like groceries and that cell phone bill are separate from savings, and should be treated that way.

Okay, now that we have that cleared up let have that chat savings!

Simply put……Saving is for today

Putting aside a percentage of your income each month into a separate savings is a great habit to develop and will help you achieve your short-term financial needs. These regular savings will help you manage your Cash Flow Plan, pay for vacations, deal with unexpected expenses, and use less credit.

You know the saying “save for a rainy day”. Rainy days in these instances refer to times of trouble, which is why we are always told to save for a rainy day. Rainy day funds are the same thing as emergency funds, so it doesn’t matter what you call your savings, it matters how you use them.

What would happen if your furnace needed replacing or the roof started leaking? Would you have enough in your rainy day account to cover the repairs, or would you have to turn to your credit card or line of credit putting you into debt? If your answer is to put it on the line of credit or credit card, you don’t have enough saved. Another way to tell if your savings are in good shape; is to watch your spending, and if you’re regularly dipping into your long-term savings to pay for short-term needs, you don’t have enough money in savings.

We have all heard that the general rule of thumb is to have between 6 and 12 months of living expenses in your savings……so how much do you have in savings?

Investing is for tomorrow

We can’t rely on our savings to fund long-term goals, like our children’s education and your own retirement. Why? Because money in our rainy-day account is held inside a savings account or even a high yield savings account which earns minimal interest, therefore produces minimal growth.

Investments, however, can grow over time.

A common belief about investing is that it’s risky, and while it is true that investing does involve taking on some degree of risk, putting too much in your savings leaves you at risk of not achieving your long-term financial goals. Even those high yield savings account may not be keeping up with inflation, which means you’re not saving as much as you think.

Over the long-term your investments will most likely produce better returns, giving you a better chance of achieving your long-term financial goals.

Let’s look at a comparison!

Using an example to demonstrate the difference between saving and investing, and how each can affect your bottom line.

Suppose you have a savings account with $5,000 and contribute $300 each month into a savings account that pays 2% interest. After 25 years your savings account will have accumulated to $124,757.51.

Now let’s say you have the same $5,000, but instead decide to contribute $300 per month towards a diversified investment portfolio that earns an average of 6% a year. After 25 years, you will have accumulated $225,333.60.

As you can see, Saving and Investing have very different outcomes. While saving helps you to achieve short-term financial goals like buying a new car or going on annual beach vacations, investments will be used for long-term financial goals such as your children’s or spending 6 months in a tropical or dessert city.

Having savings to cover those rainy days expenses means you are prepared for the curveball’s life loves to throw at us. Investments, on the other hand, are there for your long-term goals and the question isn’t if you should save or invest, it’s how much money should I save? and how much should I put towards investments?

Not on track….no worries, we can help you set up a savings and investment plan that will help you achieve your financial goals and give you financial peace of mind. Give us a call for a complimentary no obligation meeting.

Please email information@zakuskowalchuk.com or call 778-215-7230.

The information contained in this post is of general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed, and Zakus Kowalchuk LLP assumes no responsibility or liability.

Is Financial Peace of Mind Possible?

Do you have financial peace of mind?

Would your life be simpler if you didn’t have any financial worries? In reality, we probably will all face some level of financial worry, the question is how we deal with it. Here are a few tips to help reduce stress and achieve financial peace of mind.

Are your finances are keeping you up at night? Don’t worry, you’re not alone. A survey conducted by Leger Marketing of over 1000 Canadians between September 26 and October 1, 2014, discovered 42 percent of Canadians rank money as their greatest source of stress. I am confident in saying that this holds true in 2019. In fact, Canadians stress and worry more about their finances than they do work, health, or personal relationships.

Let’s look at some of the harmful effects of worrying, identify the stressors that may be affecting you, and go over a few strategies to help alleviate financial stress.

Harmful Effects of Worrying

Is there a day that doesn’t go by that you wonder what’s left in the bank account, how are my investments doing, or can I afford that beach vacation I so desperately need with my family? Or how about, will I ever be able to retire? Worrying about money has become so ingrained in our society that it’s accepted as a “normal” worry. Stressing over finances not only affects our quality of life, mentally and physically, but also the lives of those around you.

Stressing about finances can lead to:

A lack of sleep.

Laying awake at night, tossing and turning because of financial issues is no way to live. In the same study nearly half (48%) of respondents have lost sleep due to financial worries.

Ruminating about your finances won’t help you solve for financial concerns and will most likely make it harder for you to focus at work and could even cause some more serious health issues. Research has shown that rumination is associated with a variety of negative consequences, including depression, anxiety, post-traumatic stress disorder, binge-drinking and binge-eating.

Pessimistic thoughts.

If you are always worrying about the negative outcomes, you have less time to focus on being productive, and less time to enjoy life. Worrying is a down payment of emotion on something that hasn’t even happened yet, and it keeps you from being present.

Strained relationships.

Money worries are the leading cause of marriages falling apart, according to a study out of Britain and would hold true here in Canada. A poll of over 2,000 British adults by legal firm Slater and Gordon found that money worries top the list of reasons why married couples split up, with one in five saying it was the biggest cause of marital strife.

Over a third of those surveyed said that financial pressures were the biggest challenge to their marriage, while a fifth said that most of their arguments were about money. One in five of those polled blamed their partner for their money worries, accusing them of overspending or failing to budget properly.

Couples that are open about personal finances argue much less about money than those who hide things from their partner. In a survey of 1000 Canadian Couples conducted by Leger Marketing, 58 percent reported that they never or rarely argue with their partners about money.

Behavioural issues.

We all react to stress in different ways and we all have our own ways to release stress. Some turn to the gym, while others may go for a hike in the mountains. However, it is not uncommon for those with financial stress to overeat, smoke, drink, or become withdrawn from their usual social situations, especially if they feel like no one understands, or can relate, to the situation they’re in.

General unhealthiness.

Heart disease, weight gain or loss, insomnia, cancer, high blood pressure, substance abuse, anxiety, and depression can all result from stressing over finances. Health problems create bigger financial stresses and can further take away from enjoying life.

So how do you alleviate these stresses and achieve financial peace of mind?

To have financial peace of mind, it is essential to plan today. Reviewing your finances, identifying the issues, and creating a plan to help you navigate through the stressful times is vital. There are a lot of financial stressors that affect us – think about the ones that you have faced or are facing. These can include: debt, losing a job, balancing a budget (we don’t like the word budget….ask us why), paying bills, not having an emergency fund, not having enough saved for retirement, arguing about money with a spouse or family member, outliving retirement savings, impulse spending, taking a loss on investments, and market volatility in general.

We have complied 8 things that you can do today to start down the path to financial peace of mind, even when times are tough:

1. Take control of your personal finances now.

Money can free us, or control us. It is what drives our economies, it’s taken the blame for divorce, and in a way, it is the product of all products. Yet, as much as we all make, most of us know very little about how money and personal finances work. We could blame our parents or teachers, saying “they should have prepared us better”, but it’s pretty clear that placing blame won’t help you learn how to file your taxes, help you negotiate a mortgage, create a cash flow plan, or help you invest to grow your wealth.

2. Create financial goals.

“An investor without investment objectives is like a traveler without a destination”. I love this quote because we all need a destination. What is your destination? And is it realistic and attainable? Do you have debt you want to pay off? Do you want to start an emergency fund or maybe you want to take a cruise around the world? Whatever your financial destination is, knowing what they are is the foundation to developing a plan to help you achieve them.

3. Cut costs to increase cash flow.

Create a Cash Flow Plan, not a budget to help you understand where you are spending money, whether it is on one off purchases or debts with high interest rates. For example, do you really need to spend money on cable every month if you watch Netflix or another streaming services as they can provide the same shows and movies at a fraction of the cost? Another area that you should review is the amount you pay each year in investments fees. The average Canadian equity fund charges Canadians some of the highest fees in the developed world, taking 2.35% of returns each year.

4. Stick to your plan.

Your Cash Flow Plan, Financial plan, Savings, and Investments are the keys to financial success. If you haven’t spent the time to go through the process take the time as it’s the blueprint to your financial peace of mind. It will help keep you on track and prevent you from making financial mistakes down the road. Sticking to your plan can also ease that fear-of-the-unknown feeling, because you’ll have a clear picture of your financial situation rather than having your finances be a black hole of worry.

5. Automation.

Have you forgot about the cell phone bill or maybe the dog license that comes once a year? I’m sure we have all missed a bill payment or two in our lives. Aside from freeing up your time, setting up automatic payments for bills, savings, and investments, can ensure you don’t miss a payment and eases some of the financial stress you take on. It also ensures you contribute to your savings and investments throughout the year versus scrambling to make those last-minute contributions. Less stress, more free time, and fewer emotional decisions are just a few of the benefits to automating your finances.

6. Save and Invest.

Do you know the difference between savings and investments? Savings are for today, and investments are for tomorrow. Growing your savings and investments over time will help you live the life you ultimately want to. Start early and make it automatic. If you’re thinking, “this won’t apply to me because I have no investments or savings really, and it’s too late to start now,” stop! It’s never too late to start investing and saving for your goals.

7. Stay calm.

This is the most important rule. Historically, investors with a well thought out Financial Plan with a diversified and well-allocated portfolio, often come out ahead financially. Seeing losses can cause investors to panic and make irrational decisions based off emotion. If you have trouble keeping calm during market fluctuations, we can show you strategies that reduce market volatility helping keep emotions out of the equation and prevent impulsive financial decisions and mistakes.

8. Ask for help.

We have all experienced financial stresses, but continued stresses about finances is a bad habit for our bodies, our peace of mind and it can be difficult to break. Working with a Professional Financial Advisor can help you achieve financial peace of mind by giving you back your time and reduce your financial stress.

Try our tips to help reduce stress and achieve your financial peace of mind. Life can be more fulfilling without financial worries and we can all take control of our money which is simpler than we think.

Please email information@zakuskowalchuk.com or call 778-215-7230 for a chat.

The information contained in this post is of general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed, and Zakus Kowalchuk LLP assumes no responsibility or liability.