The biggest mistake you can make when saving for a house, holiday and wedding all at once.

Natasha Janssens is the founder of Women with Cents and finance expert. You can see more from her on her website.

Question: I’m renting and looking to build up a deposit to eventually buy a property and pay for our wedding and holidays. I’ll have paid off my uni and car loans soon so I’ll have some extra cash to start investing and saving, and I’d like to start thinking about where to invest this money so I don’t just spend it! I’ve considered term deposits but you generally need $5,000 minimum to start these, also interested in shares possibly. Would love to know your thoughts?

Answer: Great work on paying down your debts and getting focused on the future.

I completely understand the temptation to seek investments with high returns, especially when interest on saving accounts is so miserable right now, but there are a few things to keep in mind.

And the most important of those is timeframe.

First things first.

I recommend starting with saving three months’ worth of emergency expenses. Because it’s possible that you’ll need quick access to these funds in the short-term, they are best kept in a high interest online saver account rather than a term deposit (or in the share market).

There are plenty of online comparison sites like Mozo, Finder, Canstar, or Ratecity to help you find the latest deal, just be aware that any honeymoon rates are special intro offers that expire after a period of time, and make sure you factor in the revert rate and any fees when making your decision.

Then you can think about short-term investment…

You mentioned you want to eventually buy a property, and also cover your wedding and holidays. Weddings and holidays, like emergency savings, are typically considered short-term goals so again, not generally suited to volatile investments like shares. But a term deposit may be a suitable place to stash this cash since you know ahead of time when you will need the money. Again check out comparison sites as there are quite a few term deposits on offer with a minimum investment of $1,000 (not $5,000).

…next up, long-term investment!

As for the share market, let me illustrate why timeframe is important with a couple of randomly-selected share examples.

Example 1: Commonwealth Bank (CBA)

Here are some CBA prices over the last three months:

Image: Commonwealth Bank.

Over the longer-term, CBA shares peaked at $96.32 a share early in 2015 and have yet to return to that price point. For the most part in recent years the share price has fluctuated between $71 and $85.

Example 2: AFIC

Here is AFIC’s performance over the last 3 months:

Image: AFI.

But over the last few years, (longer-term) their share prices have fluctuated between $4 a share and their peak of $6.39.

So what does all this mean?

What I want to illustrate here is that shares are not a great short term investment – especially for situations where you are not able to pick the best time to sell. Let’s say you bought CBA shares at $86.52. You really don’t want to have to sell them at $78.89 two months later just because the dishwasher broke down!

The key to successful investing in the share market is often being able to hold shares through the short-term fluctuations so you can benefit from longer-term growth and sell when it looks like the right time – rather than just when you need the money.

And because shares can take years to grow, having access to other sources of cash (for emergencies, and things like weddings) is important.

This mum has a great tip for helping girls save and it starts with her superannuation. Post continues after audio.

So while making one-two per cent interest on your savings doesn’t sound great, it’s far better than a potential 8 per cent loss on those CBA shares in the above example (not to mention brokerage fees on top!).

Now, when it comes to saving for a house, it’s a question of flexibility. If you have locked yourself into an off-the-plan purchase for example, putting your money in the share market is not a good idea because you’ll need to access your funds at a specified time (which means if the share market takes a downturn at that time it’s not good news for you!).

If, on the other hand you are happy to wait it out and buy in around five or ten years’ time if that’s how long it takes for your investments to grow sufficiently, then the share market could become a viable investment option.