Difference Between Saving And Investment
Saving and Investing though are a bit different from each other, yet they share a common goal of financial stability. Saving and Investment are equally important because both have their own pros and cons.
People are often confused whether to invest or to save, but before you start your journey to achieve your dreams of huge wealth and financial stability, you must be very clear about these basic but very important financial concepts. Let's discuss,
What Is Saving?
The money spared for future emergencies and expected needs is called saving. Savings are mostly risk free, deposited in bank account offering a fixed monthly return.
Savings are beneficial in a sense that whenever you are in a state of emergency or whenever you need money immediately you don't need to borrow it from anyone. No worries of money arrangement, your savings will rescue you.
What Is Investing?
Investing is not risk free but it's highly rewarding, it involves buying assets that may include real estate, bonds, shares, crypto currency etc, with a greater chance that their value will increase with time.
Nowadays Real Estate is a very promising option to invest in because there are very low chances of any loss. If you invest in Real Estate your wealth multiplies within a matter of a few years.
It works in a way that you don’t have readily available money, you have to sell your assets when you need money or when you need to increase your capital gains.
Why Is Savings Important?
Saving is highly liquid, that means you don’t have to wait when you need money, just go to the bank and pull the money off you need. In short, savings are the stress free money.
Savings have fixed returns with no loss at all, though the returns are not very high but you are always getting a fixed amount at the end of the month.
Savings are very easy to do, all you need is to make a decision. No research, no hidden charges or risks are involved, very easy to pursue.
Savings are usually tax free or offer a very low amount of taxes, a lot of money is saved instead of being wasted in taxes.
DrawBacks Of Savings
Savings offer a very low return, you bound a noticeable amount of income and get a very little return. Often the returns are not more than 8-10% of the total money reserved in your account.
The saved money keeps on losing its value as inflation keeps on increasing day by day. If you have to buy a thing it's worth increases from time to time but the value of currency doesn’t change. Hence you are at a loss.
The Benefits Of Investment
Investments are highly rewarding, some businesses like Real Estate can prove to be very handy as there is a very low chance of loss in it.
Other businesses like stocks, crypto currency are also very rewarding but they involve more risk as compared to real estate.
There is no second thought that you can easily overcome inflation, if you are investing wisely. You can increase your wealth at a much higher rate than inflation rate in comparison.
DrawBacks Of Investment
Investments doubtlessly are rewarding but on the same hand they are very risky as well, if you are not investing wisely there is a huge probability that you may end up losing your wealth.
Investments Involve a great amount of research, where and when to invest and if you are not willing to do so, one wrong decision can result in an unbearable loss.
Investments are usually volatile, that means if you are in dire need of money you may have to wait for your assets to be sold, it can take a day a week a month or even more leaving you in a stressful situation.
When you invest in different businesses there is a fair possibility that some percentage of your money will be lost in taxes.
Where To Invest?
Money is never easy to earn so you should be very smart and vigilant in investing into any business. Businesses like stock exchange, shares and crypto currency are useful but they are extremely risky as well you can lose your wealth in no time.
Real Estate on the other hand is a business with the lowest level of risk, there are almost negligible chances that a property will lose its worth with time.
Investing in Real Estate offers high returns and are comparatively very safe as well, commercial properties can even give you monthly returns in the form of rent without losing its net worth.
What Is Better Savings Or Investments?
The best decision depends upon your financial condition and the financial goals you want to achieve. Depending upon your goal sometimes it's better to save and sometimes it's better to invest while sometimes it's better to have a combination of both.
The goal could be short-term, medium-term or long-term, now let's discuss depending on the goal what would be a better option to choose.
Short-Term Goals
It is better to save than to invest for short-term goals in the form of cash or cash deposits in your bank accounts, because investments are time taking and risky, you must not lose your money in a matter of a few years.
If you are well aware of your needs in near future or you have to buy a house or a car or anything for your needs within a time span of five years, savings will be a better option because investing for less than five years is not worth doing and much rewarding.
Medium-Term Goals
A blend of saving and investment will be a better choice for medium term goals, if you will save all your money inflation may have an impact on it resulting in loss.
WInvesting some part of your money will help you to minimise the consequences of inflation, while the other part of money saved will help you to tackle any financial emergency.
If your needs are flexible and you're willing to take the risk, investing in the current scenario will not be a bad option too, because investing some part of the money will minimise the effect of inflation but will not be able to overcome it completely.
Long-Term Goals
Investment will be the best option if you are following long-term goals, if you are saving for long-term, you will be a victim of inflation.
Inflation with time affects the worth of money. As inflation increases money keeps on losing worth, but your assets do not. As inflation increases the value of your assets also increases, so you will not be affected by inflation in this particular case.
Conclusion
Investment and savings both are important, it’s your financial goals and financial condition that will help you to decide whether to invest or to save. Savings are risk free but offer low returns while investments are very rewardful but equally risky.
If saving is your option, you don't need a lot of research but for investment you must be well aware of the business you are investing in, a lot of research and knowledge will be required to execute your investment safely.
