Investing and saving should start right when an individual starts earning. Many confuse saving and investing thinking as the same term but these two terms are different. When an individual saves money, he/she is keeping the amount for future use.
The individual doesn’t earn any return from the savings. On the other hand, when someone invests some amount they get some return to fulfil their financial goals.
Here, in this article, we will cover savings, investing, and the key differences between these two terms.
What is Savings?
Saving is keeping aside some money for future emergencies or needs. It is the first step towards any financially disciplined life. Saving accounts or bank fixed deposits are some of the saving options available in the United Kingdom.
Saving is similar to holding cash. The plan to create a savings account is to meet your financial goals in your life earlier. It is also making you vulnerable in case of financial emergencies.
Saving is the total amount of money that is left in your hands after covering all your monthly expenses. Saving can be done commonly or to achieve a specific goal such as saving for a vacation or buying a smartphone.
What is investing?
Investing refers to the process where you put your money in investment avenues or in financial products to grow money and help you create your wealth. Investing is the process of buying assets with the expectation that you will earn a significant amount of return over time and also grow your wealth.
But, most investments come with some risk. It is said that the higher the risk the higher will be the return. However, some better investments come with a safety that is frequently in the form of assets.
An investment is a long-term process so you need to keep patience. Equity and equity-related investments are highly volatile investments, so it requires long-term investment to be able for the best outcome from the market.
Whereas debt investments are suitable alternatives to the traditional investment options provided by the bank. Debt investments are also suitable for risk-averse investors.
How is investing different from saving
|Among the differences in savings and investing, one of the most key differences is the purpose of both. Savings are done to cover any future emergencies. You will need your saved money to cover any future needs. This money is highly liquid and you can use this in any medical emergencies, funding an occasion, school, etc. Saving will not be going to help you in creating your wealth. The saved money will not grow by itself.
|Investing is a step further to savings. While you have your saved money on your hands then you can invest it for your financial growth. If you are an instant reward seeker, then investing can hurt you a little as money will be gone for instant use. But if you are a patient investor then you will surely enjoy a greater benefit from your money. There are a lot of investment forms available in the market such as bonds, direct equity, mutual funds, real estate, stocks, and some other securities floating in the market.
|Savings will not provide you with any considerable amount of return upon the principal amount. But there are negligible risks are associated with the savings. There is very less outcome. Capital preservation is the thought behind the savings idea that doesn’t account for appreciation for capital return.
|The biggest advantage associated with the investment is the high returns that you will get with some market exposure volatile. If you are a risk-averse investor then you can opt for the funds that are low o risks like debt funds. You need to keep your financial goals aligned with your financial investments. It will help you in choosing the funds that lie in place of all your requirements.
|Risk is the major concerning factor for most investors. Risk is the factor that barred people from investing their money and they prefer to save their money in a savings account. When you put your money in your savings account then you are keeping your money safe from the market but do not get much return.
|On the other hand, the investment allows you to get a higher return with some exposure to market risks and volatility. Investing is risky but comes with a high return. There are various measures that you can take to manage your investment risks. You can select the fund according to your risk profile.
|Liquidity refers to the ease with which you can encash your saved or invested money at different avenues. Savings are liquid funds as they are simply money not in use. You can encash your saved money anytime providing high liquidity.
|Traditional investing comes with a lock of a certain period questioning the liquidity factor. But in present days, keeping in mind the investors’ need, several ways initiated liquidity needs. You can invest your fund through the SIP method and apply for SWP (systematic withdrawal plan) that allows you to transfer back your money to your links savings account for future use. There are various simple liquidity funds in the market that provides near-instant liquidity to you, thus your liquidity needs will be resolved.
Why saving and investment is so important?
From the explanation of savings and investment given above, you can understand there is one common aspect between these two. These two types of financial factors will help you to reach your financial goals and needs.
Savings enables you to put aside some portion of your earnings for future use. Investing helps you in securing your future from the long-term perspective.
Various investment avenues allow you to invest money with some risk factors and also with greater expectations. You need to choose the right financial avenues aligning with your financial time horizon.
These two aspects are important in your life as they both will let you create and increase your wealth and also secure your future. You save and invest for a better financial life in the future for yourself and your family.
Why investing is better than saving?
Wealth accumulation starts with the understanding that investing is not the same as saving. Here are some of the key factors that position investing better than savings in every means of financial avenues:
Saving means the portion of your income that has not been used for your consumption and needs. It is the amount that is left with you after the monthly expenses like bills, fuel, food, repairs, and others.
On the other hand, investing is a sort of saving that is associated with financial products such as bonds, fixed deposits, bonds, etc. which amount you have invested that will go over some specific period and increase the value of your investment. In this way, your wealth will grow in the future.
While saving, your primary goal is to save your unforeseen or any emergency events. When you have some savings then you can handle your emergencies and save yourself from falling into a debt trap.
When you invest your money the main target is to earn a higher return than a savings bank account. You can look forward to beating inflation and plan for achieving various financial goals such as higher education, buying a car, etc.
However, neither saving nor investment is better in some circumstances, the right choice depends on your present financial conditions.
If your goal is increasing the maximum amount of your money then the investment is the best option to earn interest or profit higher than the rate of inflation.
What is the relationship between saving and investment?
Ans: Saving money is putting your money away to keep and further use whereas investing means you are money in but with a desire for a higher increase.
Savings and investments are similar unless they are withdrawn from the income flows.
What is the similarity between savings and investment?
Ans: In many ways, we can say that savings and investment are equal. They share one common goal is to help you accumulate money for your future use.
Savings and investments both hold a monetary value. They both use specialized accounts associated with financial institutes to accumulate money.
Savings is the first and foremost step towards money management and helps you to cover your emergencies but for creating wealth too. But, remember that savings alone are not sufficient in building your wealth.
For bigger financial goals, you need to explore investment options that perfectly suit your risk profile and financial objectives.
It is smart to make your money but it will be the smartest if you focus on growing your money too.