Saving or Investing? Start With What You Want Your Money to Do

“Should I be saving more, or should I be investing?”

It sounds like a simple question, but the answer starts with something more important:

What are you trying to accomplish with your money?

Saving and investing can both play important roles in building your financial future, but they aren’t necessarily interchangeable. Your goals, timeframe, financial circumstances and comfort with risk can influence which approach may be appropriate. The Financial Consumer Agency of Canada recommends considering your financial situation, goals, investment timeframe and risk tolerance when making investment decisions.

Saving and investing have different jobs

Saving is generally appropriate when protecting and accessing your money is a priority.

Think about an emergency fund, an upcoming purchase or another short-term financial goal. For goals within a year or two, the Financial Consumer Agency of Canada suggests focusing on keeping funds protected and easily accessible.

Investing generally involves putting money into assets with the expectation of potential growth over time. That potential also comes with varying degrees of risk.

For longer-term goals—such as retirement or a child’s education—you may have more time to consider a broader range of investment options.

The key is not choosing one simply because everyone else seems to be doing it.

Give your money a purpose first.

Start by defining your goals

Rather than starting with, “What should I invest in?” consider asking:

What am I saving for?

Your answer could be an emergency fund, a down payment, children’s education, retirement, starting a business, building long-term wealth or another personal objective.

Once the goal is clear, you can consider three important factors:

How much will I need? How much time do I have? How much risk am I comfortable taking?

A goal you want to accomplish next year may require a very different approach from one that is 20 years away.

Understand the account—and what is inside it

One area that can create confusion is the difference between an account and an investment.

Take a Tax-Free Savings Account (TFSA), for example.

Despite the word “savings” in its name, a TFSA can hold cash savings as well as qualified investments. Income earned inside a TFSA through interest, dividends or capital gains is generally tax-free, and withdrawals are generally tax-free. TFSA contributions, however, are not tax-deductible.

This is why simply saying, “I have a TFSA,” doesn’t necessarily explain your investment strategy.

Understanding what you hold inside the account—and why—is equally important.

Don’t overlook risk

Investing involves risk, and potential returns shouldn’t be considered in isolation.

Your risk tolerance includes both your willingness to accept fluctuations and your financial ability to absorb losses. Your investment timeframe can also influence how much risk may be appropriate.

Before choosing an investment, understand what you’re investing in, the risks involved and the costs or fees that may affect your returns.

Consistency can matter more than waiting for the “perfect” time

Financial planning doesn’t have to begin with a large amount of money.

Developing a habit of regularly setting aside part of your income can help make your financial goals more manageable. For longer-term goals such as retirement, the Financial Consumer Agency of Canada notes that starting earlier gives your money more time to potentially grow and identifies automatic deposits as one way to build a consistent saving habit.

The bigger lesson is simple:

Start with a goal. Build a plan. Be consistent. Review the plan as your life changes.

Your money should have a purpose

Saving and investing aren’t about following trends or choosing a product because someone else has one.

They’re about making intentional decisions with your money based on what you’re trying to accomplish.

At ELES Financial Services Ltd., we help individuals and families understand their options and build financial strategies around their goals, priorities and circumstances.

Whether you’re beginning to save, exploring investment options or reviewing an existing financial plan, the first step is understanding where you are—and where you want to go.