Should You Save or Invest Your Money? It’s Not as Simple as You Think

Every expert has a different opinion of whether you should save or invest your money. Some scream that you must have at least $1000 saved before looking at an investment account, while others say you must start putting money away for retirement with your very first paycheck. 

Who’s right?

As it turns out, there isn’t a simple answer to the crucial financial question. However, we can help you determine what path is right for you. 

Should I Save or Invest?

The problem with expert advice is that it isn’t nuanced. Personal finance is personal, and when experts give hard & fast rules, they take the most vital factor out of the equation: you. 

So-called gurus spouting their opinions online don’t know you. They don’t know your individual situation or your personal goals. 

How can they say whether you should save or invest when they don’t know a thing about you?

Though we’re not financial advisors – and definitely not YOUR financial advisors, we can offer some general insight on factors you should consider before deciding where to park your money. 

Top Priorities

Most people should have two top priorities: Saving for retirement and building an emergency fund. 

An emergency fund is essential because it will help you navigate life’s unexpected trials and tribulations. At the same time, your retirement savings are crucial because the earlier you start, the less you have to save. 

Many experts say you shouldn’t think about doing anything until you have $1000 in an emergency account. While that’s a great goal, I’d argue that if you have access to an employer-sponsored retirement account like a 401K that matches your contributions, you should invest in that first. It’s free money. 

Of course, you should ensure you have something to put aside for emergencies, even while contributing to your employer-sponsored plan. 

Which is Better, Saving or Investing?

Saving is not better than investing; they are just different. Both have advantages and disadvantages, and both are crucial to financial wellness. 

Why You Must Save

Parking your money in a savings account has two significant advantages. First, most banks are insured by the FDIC (Federal Deposit Insurance Corporation). The FDIC insures accounts for up to $250,000 per depositor, so customers won’t lose their money if a bank fails. 

The peace of mind inherent in bank accounts makes them great options for those with low-risk tolerance. 

The second advantage of saving over investing is quick and easy access to your money, allowing you to swiftly respond to any financial emergency. 

Why You Must Invest

But the two advantages of saving don’t discount the giant advantage of investing, and that’s the opportunity for your money to grow. 

Savings accounts don’t pay dividends. Though interest rates have risen in recent years, finding a savings vehicle that can match stock market gains is difficult. 

Your money can’t grow as quickly in savings accounts, and it often won’t beat inflation.

It’s best to have a combination of both. You get some security in your savings account, and you get the growth of having investment accounts.

How Much Money Should I Save Before Investing?

Everyone has an opinion about how much you should save before investing, but the real answer is, “It depends.”

Everyone’s savings target is different. We have different incomes, budgets, and financial goals. Some folks have access to employer-sponsored retirement accounts with company matches, while others don’t. 

So, instead of giving you a number that may not work for you, we need to explore the factors you must consider when deciding whether to save or invest. 

How Much Money Do You Need in Your Emergency Fund?

Before you start investing all of your extra money, you should have a fully funded emergency account. But what that means is different for everyone. 

Most experts recommend having 3-6 months of salary saved, which will protect you if you lose your job. Having 3-6 months’ salary tucked away will give you a nice cushion, allowing you the precious time you need to find a new job. 

But do you have to have a fully-funded emergency account before you start investing any money?


Nothing is stopping you from investing and saving at the same time. 

However, you should prioritize your emergency savings account until you have enough money to handle the types of emergencies you might encounter. 

You may not encounter costly emergencies if you don’t own a car, rent, and have good health insurance. If you have high deductibles, you must ensure you have enough savings to cover those should an emergency arise. If you own a home with appliances, you should also consider how much it would cost to replace/repair one should it decide to break. 

Experts use $1000 because it’s a nice, round number, but you may need more or less than that depending on your insurance coverage, living situation, family, or other variables. 

What Are Your Money Goals?

The next big question you need to answer before deciding whether to save or invest your money is what your money goals are. Why are you saving and investing? What’s the point? 

Now, you may not have a point; you may just want to have money stockpiled to start building wealth. If that’s the case, you can begin investing once you get 1K in your emergency fund!

Everyone has different money goals, though. Maybe you are saving to buy a car or a house. Or perhaps you are saving to pay for college or retirement. You may even be saving for a vacation or a combination of things!

Your goals are personal and mean a lot to you, so whatever your reason for saving, it’s okay to acknowledge it and work towards it. However, different goals will give you different answers to whether you should save or invest your money. 

In general, the more money you need for the goal, the better it is to invest. That’s why special investment vehicles exist for huge things like retirement and college. It’s challenging to save enough money for those things without getting those sweet investment gains.

What’s Your Timeframe?

Next, you need to consider your timeframe. 

If you aim to buy a house in the next year or so, then you should save your money. On the other hand, if your goal is to buy a home in five to ten years, you should be investing that house money. 

This strategy generally works for any significant savings goal. If you have a lot of time, it’s best to invest the money because, over the long haul, you will generally make money (but please be advised that any investment comes with risk – do your research before choosing an investment. If you are stuck, check out this beginner’s guide to investing). 

Markets fluctuate way too much in the short term for them to be a good vehicle to store the money you need soon. Day by day, stocks are up, and stocks are down. It’s just the nature of the economy. 

However, they tend to trend upwards over time, so they are excellent for long-term savings goals, such as retirement, college, and even houses if the purchase will be far in the future.

If you are saving for short-term goals, such as a vacation or a car, putting your money in the bank is the best option. This way, you can guarantee that the money will be there when you are ready to purchase.

What’s Your Risk Tolerance?

Every investment comes with risk. But not investing also comes with the risk that your savings won’t earn enough interest to beat inflation. 

If you’re young and can handle a lot of risk, you should start investing as soon as possible. However, if you’re closer to retirement or can’t stand risk, you may want to squirrel away a risk-free nest egg before investing heavily. 

Throwing a Wrench Into the Equation: Debt

Saving and investing are only two sides of the triangle. Most of us also have a third variable to consider: debt. 

Now the question becomes: should you save, invest, or pay off debt?

The answer is the same: It depends

Use our triangle method to develop a plan that’s right for you and your financial goals. 

Where is the Best Place to Invest Your Money?

Many people will tell you that they know the best investments for you, and many of them are trying to get a piece of your hard-earned cash. 

We don’t have any affiliation with the investment options we recommend – meaning you can explore them without worrying that we are trying to sell you. 

Here are our top recommendations. 


Your first investment must be your employer-sponsored retirement account (401K) if you have access to one. 

Most companies that offer 401Ks also offer a match, which is basically free money. In addition, you don’t have to pay taxes on the initial investment, meaning you will pay less in taxes the year you invest (remember – you will pay taxes when you withdraw). 

You should sign up to contribute to your 401 (k) on your first paycheck. I started with only $5 a pay period because that’s all I could afford, and I increased the allocation each time I got a raise until I was getting the full match. 

Vanguard Total Market Funds

The problem with 401Ks is that you can’t access the money until retirement. Therefore, you shouldn’t put all of your investment dollars into it. 

You should also have a brokerage account that will allow you to pull out money whenever needed. 

I’m a big fan of Vanguard. I have two Vanguard index funds, one that tracks the entire market and one focused on dividend growth. Vanguard has some of the lowest fees in the brokerage space, meaning you get to keep more of your earnings. 

I have no affiliation with Vanguard other than using their services, so I won’t make any money if you explore your options with them. 

Other Options

Beginners should stick with Exchange Traded Funds (ETF) or index funds. If you don’t like Vanguard, you can explore these options with platforms like Fidelity, Schwab, or other online brokerages that offer their own funds. 

You could also use these brokerage platforms to invest in individual stocks, though that carries far more risk. If you don’t have the time or energy to review financial statements, you’re better off sticking with a diversified index fund. 

Many other investment options are available, ranging from real estate to mutual funds, Peer-to-Peer lending to bonds. All these investment vehicles come with advantages and disadvantages, so do your research before committing. 

How to Save and Invest Money Wisely

If people knew the real answer to this, everyone would be a stock market millionaire, wouldn’t they? But it’s not as complicated as it seems. 

All you have to do to save and invest wisely is be patient and diversify.

Don’t try to time the market to score big gains; don’t act on hot tips from your sister’s cousin’s best friend. Buy quality products with built-in diversification (like Vanguard’s ETF) and hold on to them, even during downturns (especially during downturns!).

 Keep your emergency fund fully funded so you won’t have to cash out of your investments during downturns. 

It’s really that simple.

You won’t become a millionaire overnight. Investing isn’t a get-rich scheme. It’s a slow and steady hike up a giant mountain with many dips, but if you stay the course, you’ll reach the summit. 

So, Should You Save or Invest Your Money?

If you made it this far, you’ve realized that the answer greatly depends on you and your personal goals

Decide your goals, and start letting your money work for you!

Author: Melanie Allen

Title: Journalist

Expertise: Pursuing Your Passions, Travel, Wellness, Hobbies, Finance, Gaming, Happiness

Melanie Allen is an American journalist and happiness expert. She has bylines on MSN, the AP News Wire, Wealth of Geeks, Media Decision, and numerous media outlets across the nation and is a certified happiness life coach. She covers a wide range of topics centered around self-actualization and the quest for a fulfilling life. 

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