Grow CNBC — Rita Cheng shares thoughts on idea that ‘Nobody ever got rich just by saving money’
September 5, 2020 — Investing lets you ‘increase the buying power of your money’ explains reporter Euny Hong@EUNY who writes, ” Make no mistake, it’s important to both save and invest. Each has an important role to play. Saving is key for short-term goals: You won’t earn much, but you aren’t at risk to lose that cash, either. And it’s easy to access in an emergency.”
However, she adds, what savings accounts are not good for is building long-term wealth and the reason is inflation — or the broad increase in prices that reduce the purchasing power of your money.
Hong turned to Marguerita Cheng for advice on “How to balance saving and investing,” explaining that the best place to start is by prioritizing your financial goals.
She writes: Most financial experts would agree that you should first save to build up an emergency fund, while paying down high-interest debt and investing at least enough to get the full match on your 401(k). Once you have a good emergency reserve, you can accelerate your investing.
Once you have emergency fund built up, aim for a mix of saving and investing, says Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Wealth in Gaithersburg, Maryland. She is also a member of the CNBC Advisor Council.
Cheng gives her clients a formula to work with, especially if money is tight. If a client tells her that they have, for example, $200 total to commit to financial goals: “Of that, $100 might go to cash reserves and $100 should be long-term investments,” she says. If someone is in debt, then $100 goes to debt repayment instead of investing.
Adapt to what’s right for you. Cheng emphasizes the importance of adapting to your individual situation, as well as what path helps make you feel financially resilient.
As Cheng puts it, “Personal finance is very personal. The textbooks say you should pay every dollar of credit card debt before investing. The textbook is missing the human element. If [investing or saving] give you peace of mind instead of paying the debt, then do it.”