When it comes to effectively managing finances, there are two main ways to help boost your bank account: saving and investing. So which one is the right option for you?

There is no definitive answer to that question, so we’ll look at some pros and cons of each to help you decide.

Saving: when is this the best option?

If you currently have no or very little savings, then this could be the best option for you. The Money Advice Service states that you should aim to have: “three months’ essential outgoings available in an instant access savings account. So, if you spend £1,000 a month on mortgage or rent, food, heating bills and other things you can’t live without, you should aim for £3,000 in emergency savings.”

It’s also important to save if you know you have a large expenditure on the horizon, such as a house deposit or car purchase. If you know exactly the amount of money you need for that item, you can figure out how long you need to save for, to make sure you can cover the cost.

Saving: the pros

Your money won’t decrease in a savings account (unless you withdraw, of course!) giving you more financial stability.
It allows you to work out definitive time frames to reach any financial goals you may have.
It gives you peace of mind that you have cash to fall back on in an emergency.

Saving: the cons

Inflation may mean the amount you’ve saved decreases in value.
You can’t take advantage of high returns that you may see when investing, so your savings will grow at a slower rate.
Certain savings accounts have restrictions on withdrawing money, which can be problematic. However, there are instant access savings accounts if you want to be able to access your money at any time.

Investing: when is it the best option?

You should consider investing if you already have an emergency fund in place that you can fall back on. You should also make sure that you can realistically afford to take cash out of your disposable income without struggling financially. This is because investing can peak and trough depending on the current marketplace. So if you make a loss, you still need to be able to manage your essential outgoings.

Investing: the pros

Your money may grow faster due to higher returns on investments.
This may make it quicker to achieve your goals and make large purchases.
The more your investment returns, the more your money will increase over time.

Investing: the cons

Your investments may decrease in value, leaving you at a loss.
This may mean you have to wait an extensive period of time for your money to grow again.

Ultimately, it’s your choice whether to save or invest your hard-earned cash. There are pros and cons to both, so carefully consider each option to ensure you achieve your financial goals.