Saving vs Investing : For a person to lead a peaceful and stressless life, having a good knowledge on how to maintain financial resources is crucial. Just having the knowledge won’t give you financial freedom. You have to implement the knowledge in a wise way to accumulate good fortune over the long run.
If you don’t know about how to manage your finances, then we recommend you to keep it as a high priority objective and learn the basics. This one simple step could significantly change your lifestyle in many ways. If you are not comfortable or don’t have time to learn about maintaining your finances, then you could approach financial advisors. There are a myriad number advisors, choose the one based on the reviews and ratings. They will charge fees for giving you advice on how to allocate funds for short term and long term goals.
Planning a Family Vacation to Maldives comes under short term objectives, whereas planning to buy a home after retirement or accumulating funds for children’s education comes under Long term goals. You should have a clear understanding how much funds you should save for short term goals and long term goals. Without having a solid strategy you could misuse the funds and opportunities. A person with good capability of managing his financial resources can lead a peaceful and happy life even if he encounters unforeseen circumstances.
Many People think that “Saving” and “investing” are the same and they interchange these words comfortably during any debate or while explaining to others about their financial status. “Savings” and “Investing” are two different financial terms with differences in meaning. In this blog post we will cover the exact difference between “Savings” and “investing”, and how they can be used to achieve financial freedom.
Investing vs Saving : Main Difference
To successfully manage your finances, you should inculcate two approaches in your lifestyle i.e. saving and investing. Saving and Investing are two different methods and depending on the financial goal you should choose one.
Saving :
Saving is nothing but “the act of putting your hard earned money for future requirements in a secure and easily accessible place , such as a savings account“. Apart from savings accounts there are few other options like bonds where you can save your money. You can use these funds for fulfilling short term goals or to face issues which come into your life without any notice like medical emergencies. You can withdraw this saving fund very easily and it will act as a financial cushion in case of unexpected events.
Investing :
Investing is another form of saving money by buying assets like stocks or real estate with a hope that money invested would appreciate in the long term. You should look at investment as a long term strategy. If you are a salaried person and aiming to become rich then investing for the long term is the only way. You should not touch these assets in case of emergencies and let them grow.
Unlike saving, investing has the scope to give you huge returns on the money you have deployed in the assets like stocks and real estate. Of course Investing has its own set of con’s like Illiquidity & Scams & Frauds. So be cautious while taking investment decisions as it could wipe out your whole capital.
So it is recommended to keep a balance of savings and investing, as human life is unpredictable. In case of emergencies you can use Savings and leave Investments for long term, so they could give multifold returns.
Till now we have covered only on standard definition of saving and Investing . From here on we will dive more into the topic and cover all the in-depth topics related to savings & investing like “Pros and cons of saving & investing”, “when a person should opt for saving & investing”, “Difference between saving & investing”, “Goal setting vs Savings & investing” and many more.
Saving :
As we have already explained about “Saving” earlier and in this section we will explain more about ” Common reasons for opting Saving over investing”.
Saving is nothing but keeping aside a small portion of your monthly income after all your expenses. This income kept aside for later use is coined as “Saving”. Here “later use” is nothing but short term goals, unforeseen obstacles like medical emergencies or sudden job loss etc.
Let us assume you are earning $ 10k per month and around $6k will go for monthly expenses. So the remaining $4k can be used for saving. [ here we are not discussing investing ].
The Savings amount is readily available and you can use it whenever you require them. To be precise this is the most simple & secure way to keep your money aside for the short term future and at the same time you can earn decent interest or returns from it. Don’t expect that you are going to beat inflation with returns from your savings.
Apart from the interest rate the most important thing about “Saving” is you are not risking your money i.e. your money is 100% secured. Moreover cashing out money from saving is very easy and it can be done without any extra fees.[ You will get to know about fees, once you start reading about Investing.]
What are the most common reasons for “Saving” ?
In managing personal finances “Savings” plays a crucial role and many people fail because they don’t have ample knowledge on it. First of all people are not aware of unexpected scenarios that may come into their life without any warning. Most of us think that “let’s face the issue when it happens”. We don’t prefer to think about it and prepare to face it in advance. This is the main reason for most of the people struggling in their life during the unexpected emergencies.
Here we are going to list out all the situations [ some of them are unexpected and others are planned ones ] where the savings amount can become handy.
In case of Short Term Financial Goals
Short term financial goals can be considered as goals which you are looking to achieve within the next few months or 1 year or 2 years.
Examples : Family Vacation, Special gifts on Birthdays & Anniversaries, Education & Tuition fees, Buying a new electronic gadget like smartphone, buying a home appliance or kitchen appliance, Festival Expenses , for paying insurance premiums annually etc.
All the above stated are planned goals but you cannot achieve such goals with your monthly income. So it is recommended to save a part of your monthly income and preserve them to achieve your short term goals. With this approach you don’t need to depend on credit card or traditional way like taking credit from others.
To avoid Debts in achieving short term Goals and in Planning one in a life time Purchases :
Whether you are planning for to purchase a home or car, then you have to pay down payment in order to avail the loan facility. In such scenarios you can use savings to fulfill the down payment amount.
As we have discussed earlier, you can use savings amount to meet your short term goals.
In achieving such short term goals and down payment for big purchases, with saving amount you don’t need to take credit from others. Avoiding debts is possible with you savings and you can contain the financial stress with this approach.
Savings can be used as Emergency Fund :
As human beings we should be ready for unforeseen situations. we all know that life is quite unpredictable and we should be equipped with required tools in such unexpected events. Saving will act important tool in dealing with medical emergencies, in case of sudden job loss etc.
Few examples of emergencies : Health related issues, car accident, car repair, home repair, layoff etc.
Finance experts and advisors recommend everyone to keep at least 3 to 6 months of monthly income in your saving, so that in case of any emergency you could handle the situation without any financial stress and peace of mind.
If You are planning a side hustle for passive income then Savings can come as your savior:
Everyone has their own dream of starting a business to earn passive income and to increase their revenue sources. If you don’t have saving’s then for starting a business you have approach a lender or for a bank loan which eventually increases the stress.
To start a business, you need to have initial capital to buy equipment’s, rent a space and to pay salaries. You can use the savings amount as an initial capital to start your own venture.
For Retirement :
Here we are not discussing about long term retirement plan, for such situations only option is investing. Instead we are talking about immediate post-retirement expenses and days before retirement.
Savings amount act as cushion during early and post retirement days. With this saving you can cover short term needs and day to day expenses. In some cases your health insurance won’t cover all the health issues. You can use the “saving” to cover such health emergenies.
Tools / Instruments for Saving :
Saving is nothing but preserving your hard earned money in a account / instrument with zero risk [ minimum risk]. At the same time it should provide perks like easy to cash out without any extra fees and security.
