Why Saving First Can Give You More Financial Flexibility
Having some accessible savings before or alongside investments can provide useful financial flexibility, but there is no universal savings balance you must reach before you can start investing.
A more useful question is:
Could you realistically need this money in the near future, or can it genuinely be left invested for the longer term?
Savings and investments can perform different jobs. As we explain in Saving vs Investing: What’s the Difference?, savings generally provide greater stability and easier access to your money, while investments can rise and fall in value in pursuit of potential longer-term returns.
That distinction matters when something unexpected happens.
If an essential expense suddenly appears and you have accessible savings, you may be able to use those savings while leaving your longer-term investments alone. Without that buffer, you may have fewer options and could find yourself considering whether to sell investments at a time you did not choose.
This does not mean saving has to be completely finished before investing begins.
The aim is to understand which money you may need to rely on relatively soon and which money can realistically be committed to a longer-term goal.
Why Can Savings Matter Before You Invest?
Investments work best when you have some flexibility over when you sell them.
Investment values can rise and fall. If you unexpectedly need money while an investment happens to be worth less than when you bought it, you may prefer to leave it invested rather than sell simply because you need cash.
Accessible savings can give you another option.
With Accessible Savings
An unexpected expense may be met from money kept available for shorter-term needs, potentially allowing longer-term investments to remain invested as planned.
Without Accessible Savings
The same unexpected expense still needs to be paid, which could mean reducing other spending, borrowing money or considering whether to sell investments.
Savings can stop a short-term need for money from automatically becoming a long-term investment decision.
This is important because financial emergencies and investment markets do not coordinate with each other.
An urgent car repair does not wait until your investments happen to be performing well. Nor can you normally choose when income will unexpectedly fall or another essential cost will appear.
Having accessible savings does not guarantee that you will never need to sell an investment unexpectedly. It simply gives you another source of money that may reduce the chance of having to do so.
What Could Happen If You Invest Without Any Savings?
Investing without accessible savings does not mean something will necessarily go wrong.
The difficulty arises if you need money unexpectedly while your investments happen to be worth less than when you bought them.
Suppose you have £5,000 available and invest all of it with the intention of leaving the money invested for several years.
Six months later, the investment happens to be worth 15% less than when you started.
At the same time, an unexpected £1,500 essential expense arrives.
This illustrative example shows why a short-term need for money can become important when you do not have accessible savings available. This is an illustrative example rather than a forecast. Investment values can rise as well as fall, and future market movements cannot be known in advance.An Unexpected Expense After Investing
If the unexpected expense had not occurred, you might have been comfortable leaving the investment alone.
The problem is therefore not simply that the investment has fallen by £750. It is that your need for £1,500 has appeared at the same time as an unfavourable investment value.
If some of the original £5,000 had remained accessible instead, there could have been another source of money available towards the expense.
There is a trade-off. Keeping some money in savings would mean that less of the original £5,000 was invested and therefore less money would participate in any investment growth.
But maximising the amount invested is not necessarily the only consideration. Some of your money may have a different job: providing financial flexibility when something does not go according to plan.
Do You Need an Emergency Fund Before Investing?
Emergency savings can provide an important layer of financial flexibility before you invest, but there is no universal emergency-fund balance that automatically determines whether you are ready to start investing.
The appropriate amount can vary considerably.
Someone with predictable income, relatively low essential expenses and few financial commitments may have different needs from someone with variable earnings, dependants or substantial household costs.
Even a relatively small amount of accessible savings can provide some protection. An emergency fund does not suddenly become useful only when it reaches a particular target.
The important point is that committing money to investments should not leave you unnecessarily dependent on those investments for unexpected short-term costs.
If you currently have little or no accessible savings, you may therefore decide that establishing some financial breathing room deserves greater priority before committing more of your available money to investments.
That is different from saying you must reach a prescribed figure before investing anything.
For the detailed question of how large that financial buffer might be, see How Much Emergency Savings Should You Have?.
What Money Should Probably Stay Out of Investments?
Looking only at your total bank balance can give a misleading impression of how much money is genuinely available for investing.
Different parts of that balance may already have different jobs.
Before deciding whether money could be invested, it can help to separate money according to when and why you may need it.
Money required for housing, household bills, food, transport and other normal commitments already has a near-term job.
Money kept available for unexpected costs or other shorter-term needs can provide financial flexibility without relying on investments.
Money that is not needed for normal spending, expected near-term costs or your financial buffer may be more suitable for considering longer-term investing.
Money is not necessarily available to invest simply because it is currently sitting in a savings account. What matters is whether it already has another job.
Think About the Job Your Money Needs to Do
Normal Spending and Bills
Needed now
Accessible Savings
Financial buffer
Longer-Term Money
Potentially investable
Suppose you have £8,000 in savings.
At first glance, that might appear to give you a substantial amount of accessible money before investing.
But imagine £5,000 is intended for a car you expect to replace next year.
That £5,000 already has a planned purpose. Treating the entire £8,000 as your financial buffer would therefore give a misleading picture of how much money is genuinely unallocated.
The same principle applies to other costs you already expect.
Money for a house deposit, annual bill, planned home improvement, education cost or another relatively near-term goal may need to remain available even though you do not intend to spend it immediately.
This is different from emergency savings. Emergency savings are intended to provide flexibility when something unexpected happens. Planned savings are for costs you already know or reasonably expect to meet.
Both can affect how much of your money is genuinely available for longer-term investing.
The sooner you expect to need money, the less flexibility you may have if an investment happens to fall in value before that date.
When Should You Save Instead of Invest? looks more closely at how the purpose and timeframe of your money can affect that decision.
Do You Have to Finish Saving Before Investing?
No.
Thinking of saving and investing as two strictly consecutive stages can make the decision unnecessarily rigid.
It suggests a process such as:
Save → reach a target → stop saving → start investing
But your need for accessible savings does not disappear simply because you have started investing.
You might later use part of your emergency savings, your essential costs could increase or your circumstances could change enough that you want a larger financial buffer.
A more realistic relationship can therefore look different.
Saving and Investing Can Continue Alongside Each Other
Starting to invest does not necessarily mean that saving is finished. The balance between the two can change as your finances change.
-
Build accessible savings
Keeping some money available can provide financial flexibility before more money is committed to longer-term investments.
-
Begin investing longer-term money
Money that does not have a near-term job may become more suitable for considering longer-term investing.
-
Continue saving where appropriate
Starting to invest does not prevent you from continuing to add to accessible savings at the same time.
-
Use savings when genuinely needed
If an unexpected expense occurs, accessible savings can perform the job they were intended to perform.
-
Rebuild or adjust the balance
After using savings or when your circumstances change, you can reconsider how future money is divided between accessible savings and longer-term investing.
Saving and investing are not necessarily consecutive stages. They can continue alongside each other because the money is serving different purposes.
This distinction matters because a savings target is not necessarily something you reach once and then forget.
If you use £600 of your emergency savings for an essential repair, for example, you might later decide to rebuild the amount while continuing to hold your existing investments.
Your financial circumstances can also change. Moving home, changing jobs or taking on new responsibilities could alter the amount you want to keep accessible.
Saving and investing can therefore remain connected parts of your finances rather than a sequence in which one permanently replaces the other.
Can You Save and Invest at the Same Time?
You may decide that new money does not always need to go entirely towards saving or entirely towards investing.
For example, suppose you have £300 available each month after covering your normal spending and commitments.
You might decide to direct £200 towards strengthening accessible savings and £100 towards a longer-term investment.
Those figures are purely illustrative. They are not a suggested allocation.
Someone else with different income, expenses, savings and financial goals could reasonably make a very different decision.
The important point is that the choice does not necessarily have to be:
save everything
or
invest everything.
As your accessible savings grow, you could reconsider how new money is divided. If you later use some of those savings, you could reconsider the balance again.
This can also allow saving and investing habits to develop alongside each other without treating the start of investing as the end of saving.
What matters is that investing does not leave you dependent on those investments for money you could reasonably need much sooner.
If every unexpected expense would require you to consider selling an investment, that is worth recognising before deciding how much money to commit.
When Might You Be Ready to Start Investing?
There is no single financial milestone that automatically tells you that you are ready to invest.
A particular income, savings balance or monthly contribution does not make the decision for you.
Instead, it can help to consider whether the money itself is realistically suitable for a longer-term investment.
Questions to Consider Before Committing Money to Investing
These factors do not create a pass-or-fail test. They can help you think about whether the money you are considering investing genuinely has a longer-term job.
Are your normal and near-term costs covered?
Money required for bills, essential spending or known upcoming expenses already has another purpose and should not be treated as spare simply because it is currently available.
Do you have accessible money to fall back on?
Some accessible savings can provide another source of money if an unexpected financial need occurs, reducing your dependence on investments for shorter-term costs.
Can the money realistically remain invested?
Investment values can fall as well as rise. Money that may need to be withdrawn on a particular near-term date has less flexibility if its value happens to be lower at that time.
Do you understand that the outcome is uncertain?
Investing involves accepting that future returns are not known and that the value of an investment can be lower than the amount originally invested.
Being able to leave money invested does not guarantee that it will recover from a fall or produce a positive return. A longer timeframe simply gives you more flexibility than money that has to be withdrawn on a particular near-term date.
It is also important to separate two decisions:
Could some of my money be suitable for longer-term investing?
and
What should I invest that money in?
The second question introduces investment selection, diversification, risk, fees and other considerations that are outside the purpose of this guide.
You do not need to make those decisions simply because you have concluded that some of your money may be available for the longer term.
The key question at this stage remains:
Can this money genuinely be committed to a longer-term goal without leaving you dependent on it for something you may need much sooner?
Conclusion
Having accessible savings before you start investing can give your finances greater flexibility, particularly if an unexpected expense or interruption to income occurs while investment values are lower.
But there is no universal savings balance you must reach before investing becomes an option.
Instead, consider what your money needs to do.
Money required for normal spending, planned near-term expenses or a financial buffer already has a shorter-term purpose. Money that is genuinely separate from those needs and can realistically remain invested for longer may be more suitable for considering investing.
Saving also does not necessarily finish when investing starts. You can continue building, using and rebuilding accessible savings while longer-term investments perform a different job.
The question is therefore not simply “Have I saved enough to start investing?”
It is whether investing this particular money would still leave your shorter-term finances able to cope without depending on the investment at a time you did not choose.
