What are the advantages of saving money, as opposed to investing it or spending it?

By whatever route it comes to you, money is an asset worth preserving, unless you have so much of it that this does not matter - in which case you are one of a lucky and very small percentage of the population. If you are a salaried employee, you may be able to accumulate savings every month to spend at your leisure, either as a lump sum or in a system of regular payments.

If you inherit money, it may come in the form of property or money - cash or investments. If you win the pools, make a killing on the stock market or are made redundant, you may suddenly find you have a large sum of money to take care of.

Or if you are self-employed, your business may be earning you enough money to warrant careful planning of your financial opportunities, rather than simply letting the business take care of itself.

Whatever your circumstances, it is vital - though it is perhaps obvious to say so - that you decide for what purpose you need to plan ahead, if at all. If you have made all your plans already, then you may be looking only to safeguard your present standard of living.

You may be prepared to consider some of the more speculative investments which may lose you all you put into them, or may double or triple your money.

On the other hand, if you have a family or other dependents, and only a small amount to spare, you will need to make sure that your money is invested wisely.

Spending money on the needs of daily life is something that most people think of in different terms from investment and savings and, of course, buying groceries, household equipment and so on, sees very little return, except in the standard of living which you have chosen. But even here, it is worth thinking about the longer term.

Who would have thought, after all, that the Dinky toys which so many parents bought their children in the 1960s and 1970s would have turned out to be a very promising investment (when properly preserved)? At the same time, the car you choose may, when looked after carefully, turn out to have some financial benefit to you rather than simply being a means of transport.

Investing online, who'd of thought that a few 00,000 invested in Brin and Larry would pay back billions with Google. But then who got caught up in the Facewebsite IPO and is losing money? A good start is http://www.fool.com/investing/brokerage/how-to-invest-20-100-and-1000-and-more.aspx

It goes without saying that if you decide to spend a windfall on the good life - drink, gambling and other expensive pleasures - then you have thrown caution to the winds, and can expect to have little left but memories.

But if you would like to keep your money in some more longer-lasting, tangible form, then investing it or saving is preferable.

Of course, there are moments when spending money, rather than investing or saving, makes financial sense in itself. For example, in the period of near-30% inflation in the mid-1990s average household goods were worth buying and storing in some quantity, because one knew that they would almost certainly be more expensive later.

But such periods are difficult to predict. Anyway, this is really a form of investment akin to buying Chinese porcelain or good wine.

Perhaps the key distinction between spending money and investing it is time. Investing implies that whatever you have bought will be sold later, and some form of gain will be realised, while spending is mostly short-term.

The distinction becomes somewhat blurred when you look at things like wine and furniture, which you may keep for many years and enjoy yourself.

The key to investment is to buy something for the purpose of seeing your money grow, or to buy something cheaply now which will be more expensive in a few years time.

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CCMG - 2013

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