Saving vs. Investing: Five Steps to Make the Most of Your Money

When it comes to our finances, most of us want that safety net; to know we are setting ourselves up to live the lifestyle we want – whether that is buying a home, starting a family, taking a dream trip, or just having some financial security. But with today’s record low interest rates, it can be hard to make a return on your savings. Leaving your money sitting in your bank account is never a great strategy and in today’s financial climate, products like term deposits typically aren’t offering much of a return either.

So, what can you do to make your money work for you? It really does depend on a number of factors, from your goals to your risk profile. Here is our five-step guide to making the most of your money.

1. Know your investment horizon

The best option for you really depends on your personal situation and your goals, and a critical part of this is your timeline. The first step is to understand when you will need to cash-in your investment.

If you want, for example, to save for a deposit to buy a home in the next eighteen months, you want to limit your options to short-term investments. You don’t want to put your money into a long-term investment and risk losing it or having to pay additional tax because you pulled your funds out too early. For example, if you sell shares within twelve months, you won’t benefit from the Capital Gains Tax discount for individual investors, and will need to pay the full amount.

2. Determine your risk profile

Once you know your investment horizon, you need to understand what level of risk you are willing to take.

Any investment decision outside of putting your money in the bank will come with a level of risk. Typically, the more risk you are willing to take, the higher your potential returns, but you need to understand how much you are comfortable (and can afford!) to risk. If you lose some, or even all, of the money you invest – what would be at stake?

3. Understand how much you can invest

While it’s tempting to invest all of your spare cash in order to increase your returns, you need to be practical too. In most investment scenarios, you can get your money out early if you need to, but there can be fees for doing so or you may take a loss because you can’t ride out a market downturn.

It’s a good rule of thumb to make sure you have enough cash on hand to cover your general living expenses for around six months. Think about your rent/mortgage payments, transport costs, groceries, social life, etc., and make sure you keep enough on hand. That way, if an emergency arises, you can use this cash on the immediate expense and start to wind down your investments to cover any future shortfall.

4. Explore your options

When it comes to your options, those with a longer investment horizon typically have more – as they have the advantage of being able to ride any downturns and make up any short-term losses over time. If you are in this situation, you can explore a range of fully-franked investments – shares that give you the benefits of an income and the potential to grow your capital.

For shorter-term investors or those with a low risk profile, we are seeing a growth in fixed income investments, such as bonds. These investments offer a small fixed interest amount for the life of the investment, but no capital growth. As with all investments, there is some risk, however these tend to be on the lower risk/lower return end of the spectrum.

5. Talk to an adviser

When it comes to making a decision on how to make the most of your money, it really does pay to get financial advice. A good financial adviser will take the time to understand your life goals and what’s important to you to help you determine the best strategy to live for today while planning for tomorrow.

General Advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.