Building Your “Moneybin”—When to Save and When to Invest


Learning how to save money is the first step to financial success. Whatever your long term financial goals are, saving and investing your money will be critical to achieving the wealth you want. Wherever you are on your journey, the first step to building wealth is determining where your money goes. There are numerous ways to track spending so that you can understand exactly where your money goes every month.

Ways to track your spending:

  • You can go low tech and carry a small notebook or use the notes option on your phone. Just jot down the date and then record everything you spend. Many who use this method then record everything onto an Excel spreadsheet when they have time. Though this method works if you are diligent, there are easier options available.
  • Moneybin is an app that makes recording every expenditure easy and convenient. It then sorts the spending into categories and lets you see how much you have spent on a particular category, like food, in a week, month, or year.
  • Skrooge has an app and a desktop version that provides all the tools you will need for expense tracking and personal finance management.

After you track your spending for a month, you should be able to identify ways to slash spending to build up your savings. Savings is a cornerstone of wealth-building because having money in savings will help you cope with the unexpected expenses that always occur in life without turning to credit. Most financial experts recommend that you have at least three months worth of living expenses in an easy to access savings account. That is your first goal in building wealth.

The difference between saving and investing

Saving money usually involves putting money into a low-interest savings account at your bank or credit union that pays a low-interest rate. You will not earn much on this money, but it is kept safe and accessible. Once you have your emergency fund in savings, it is time to start thinking about investing.

Investing money means putting it into stocks, bonds, or mutual funds that are a combination of the two. You can also invest in tangible assets such as real estate or precious metals. Investing is the best way to grow wealth, but there is always some level of risk involved. When saving for long-term goals, such as retirement, your money has plenty of time to ride the highs and lows of the stock market and make money for you over time.

Once you have established your emergency fund, you should work to reduce debts and spending until you can save at least 20% of your net income each month. When you can do that, you should consider splitting it between savings and investments. Savings above your emergency fund can be used for large purchases in the future, such as a vehicle or the downpayment on a home.

Always take advantage of free money

Many companies now offer some form of a 401k to their employees. This is a retirement plan where the employer matches your retirement savings up to a certain percentage. Always invest at least enough to take advantage of the full amount your company will match. Over time, a 401k that is fully vested can grow into a significant sum of money. When you change jobs,  you can roll your 401k into a new retirement account, where it can continue to earn compounding interest.

The power of compounding interest is too often overlooked by those who can benefit the most from it. Those who are still early into their years in the workforce can amass substantial wealth by taking advantage of employer-sponsored savings plans as long as you continue to invest and let the money continue to earn money for you until you reach retirement age.

Starting a modest investment portfolio as soon as possible helps you build wealth while learning about the smartest ways to invest your money. It is easier than ever to invest with many investment companies offering low or no minimum balance to start your investment account. The learning tools on these sites can help you set financial goals and guide your investment choices to meet those goals best.