Savings and investing—these are the two important concepts that are not the same but are always mentioned together. One is to keep our money aside for future use and the other is to grow our money. But both concepts are used to build a strong financial future. So, are they really that different?
In this article, you will learn the difference between the two financial concepts, and discover when to invest and when to save.
Savings vs Investment
Saving is putting aside some of your money to be used in the future. If compared with investing, saving is considered to be of low risk. You can build your savings by one-off or regular payments. And you may save because you are planning to buy a new car or you want to make sure that you have enough money for emergencies.
Saving is suitable for you if you are not big on taking risks. But it’s important to remember that with lower risks comes lower rates of returns.
Investing, on the other hand, is about putting aside some money for future use BUT putting them aside in a place where you believe the value will change over time. Examples of investing are buying stocks, bonds, or property. Through this method, the investor will invest their money with hopes that the investment will make more money for them over a given time. However, investment comes with a risk—you are not guaranteed to make more than the money that you have used to invest.
Investment is suitable for those who are willing to take a risk and those who have money to spare for the medium or long term.
|• High liquidity and easily accessible|
• Short-term goals
• Lower rate of return
|• Can be stored in forms of assets|
• For longer-term goals
• Potentially higher rate of return
So, when should you save and when should you invest?
Deciding whether or not you should invest instead of saving or vice versa all boils down to your financial standing, financial goals, and your attitude towards taking risks.
But the general rule of thumb is that if you need the money within the same year or the next, or if you’d like to have some money as your emergency fund, then savings is the more viable option. If you have enough money to last you for the next five years and can withstand some losses in capital on paper, then you can opt to invest your money.
Compared to savings, investing is more suitable for the medium to long term. Keeping your money in investments for a long time allows you to ride out the ups and downs of the financial markets and potentially grow your money.
Generally, one should be saving and investing. Savings give you the liquidity to take care of your present needs and for rainy days. However, to catch up with inflation and to yield potentially higher returns for your wealth accumulation needs, you would need to consider investing part of your savings.
If you are still undecided on whether to save or invest your money, get in touch with me and I’ll help assess your financial standing, review your long-term and short-term goals, and help you make sound financial decisions. Have any comments or questions? Send them my way!