When to stop saving and start investing!

In part 3 of our Spending review series, we have discussed the saving rate and how you can set aside some money every month thanks to that. 


Now, the interesting question (assuming you manage to save something at the end of the month, if not go to part 4) is, should you save indefinitively or should you stop at a certain point? If you stop, what are you going to do then with the money you were previously saving?


Keeping on saving indefinitively might resonate as a sound idea at first, however there is a challenge with that: your saving account will barely protect your money from inflation in the long run. 


By keeping a lot of money on your saving account, you are paying a kind of tax - inflation - and your money will lose value in real terms. Therefore, while it is key to have money saved in your saving account, you dont want exaggerate with that - so to speak. 


There are a couple of good rules of thumb to understand when to stop saving:

  • Option one - save until you have around 3 times your net monthly income available in your saving account
  • Option two - save until you can cover your fixed expenses (e.g. rent, utilities, mortgage - you should know how much they account for - if not go back to part 1 and part 2) for at least 6 months 

This should give you a relatively decent peace of mind - in case something happens, you are covered for a while and dont need to freak out. 


So, what do you do when you can stop saving? Well, then you need to enter the world of investing...!

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