Deciding what to do with your spare money? Keeping cash available has clear advantages, but if you’re putting money aside for a goal that’s years away, investing could give it more opportunity to grow – provided you’re comfortable with the risks involved.

Start with what you want your money to achieve

Before investing, define what you’re working towards. A specific goal makes it easier to decide how much you can commit and whether investment risk makes sense.

For example, money for a holiday next year has a very different job from money you hope to use towards retirement in 20 or 30 years.

For the holiday, you’ll probably value certainty and easy access. With a distant goal, you may have more scope to accept fluctuations in value in return for the potential for higher long-term returns.

Giving your investments enough time

Investing generally works better as a longer-term approach, often over at least five years. Markets can fall sharply, and you don’t want to find yourself forced to sell after a downturn because you suddenly need the cash.

A longer timeframe gives your portfolio more opportunity to recover from weaker periods, although recovery isn’t guaranteed. It also gives investment returns more time to compound, as any growth can potentially generate further returns.

Decide whether investing fits your circumstances

Your timeframe isn’t the only consideration. Think about how you would react if £10,000 temporarily became £8,000 or less. If that would prompt you to sell immediately, you may need to take less investment risk.

Your income, debts and regular commitments matter too. If your finances can absorb market fluctuations and you’re investing for a longer-term objective, a stocks and shares ISA can provide a tax-efficient way to hold investments. You won’t pay UK Income Tax or Capital Gains Tax on returns within the ISA, although tax rules can change and their value depends on your circumstances.

Build a cash buffer first

You never know when an unexpected bill could arrive in the mail. A broken boiler or urgent car repair could cost hundreds or thousands of pounds, so accessible savings can stop you from having to sell investments at the wrong moment.

Consider building an emergency fund before committing spare cash to the market. Many people aim to hold enough to cover several months of essential spending, but the right amount depends on factors such as your job security and household commitments.

Connect your plan to your ambitions

Once you have a financial safety net, work backwards from your longer-term objective. If you want £30,000 towards a future house move or enough for a comfortable early retirement, for example, consider when you’ll need it, what you can contribute each month and how much uncertainty you can accept.

Review your progress periodically rather than assuming markets will deliver a particular return. As your target date approaches, you can reconsider how much risk remains appropriate.

A realistic plan connects what you invest today with when you need the money – without relying on investment growth that may not materialise.