Saving vs Investing: What’s the Difference?

If one of the major things you crave in life is to attain financial freedom, then saving and investing are two important things you need to give a bigger thought and start accommodating in your daily plans. Even though there has been a correspondent usage of the terms, striking differences still exist between them with both being very essential to your financial life as an individual. Resorting to saving, or taking recourse to invest is completely at your own will and the type of financial strategy you have as a person. But generally, saving is mostly perceived as a financial strategy that only covers short-term projects and expectations, whereas investing is taken as a long-term affair.

Saving vs Investing: What's the Difference?

Everyone knows how important and personal our long and short-term projects are to us. While short-term projects help us in terms of our daily to weekly to monthly needs to survive every day, long-term projects allow us the opportunity to complete a much complex goal we set for ourselves, such as opening our own business or buying a home. To this effect, it then becomes increasingly needful for you to have to accommodate both saving and investing habits, especially if you are very determined to come good and meet your set goals at different points of your life.

In this article, you will know what it means to save money or fund, and also what investing entails, and how both can be incorporated into our daily financial plans because the truth is; if you must survive hard times, you must be practising either of both. But it is better to have plans for both of them and this article will tell you why.

What is Saving?

Saving normally happens when you take out funds in the liquified state, or money form, and store them away in a safe wallet such as the one provided to you by banks for later usage in a not-so-distant future. With saving, you enjoy the flexibility of accessing, withdrawing, or collecting your money back several times a week and at your discretion. Saving, of a certain kind, also entitles you to earn a particularly small amount in terms of interest; this token the financial company gives to you for deciding to do the business of saving money with them.

What Benefit Does Saving Have?

There are a few benefits of saving to the individual and they include the fact that they are easily accessible, less complicated to open a savings account unlike investing, and they help you meet your short-term needs.

1. Savings Are Easily Accessible

Unlike investing which does not support accessibility at all times, savings allows you to track, monitor, cash out your fund or money whenever you are ready to do so, although this is still largely dependent on the type of savings you are signed in to. But generally, having access to your money is never an issue with a savings account, and this is largely because a big part of the reason you started saving in the first place was to gather the fund and use them to sort out pressing, sometimes unforeseen needs.

2. It Is Easier To Open A Savings Account

Savings account are very easily opened with all you need to do to get one being to show a valid means of identification, passport photograph, and a utility bill. With these initials, a bank or other savings company gives you the form of saving and when you are done you have yourself a working savings account. This process generally doesn’t take long so you could start and finish in minutes, and within a day.

3. Saving Helps You Meet Your Short-term Goals?

Saving is practically the go-to project for meeting your short-term needs and goals. These short-term, pressing needs might include you needing a car to become more mobile for your business’ sake, or better still you may want to book a  holiday for yourself and your family among other things. Saving allows you to achieve all of these and more. Let it be said here that without saving, you very likely will struggle with fulfilling these projects and may not be able to foot the bills for them, hence the importance of giving saving a try for good.

Are There Any Downsides To Saving?

Yes, there are some downsides you may experience with a savings account, however, these downsides are easily a plus for you if you are investing, this is why it is strongly advised that you try and incorporate the two. Some clear disadvantages of saving are that you easily blow up your money, and your so-called interest under-saving are meagre and will almost amount to nothing even after saving for a very long time.

What is Investing?

Investing entails the buying of shares and assets, or other forms of securities to earn a regular profit from their market performances over a spread duration of time. Simply put, investing is what happens when you decide to use your hard earn money to purchase a portion of a market of a company in the form of stocks, bonds, products and commodities, ETFs et cetera, to leverage on the activities in the exchange market for a good profit over time. Investing is different from saving in many ways and one is that it is for long-term purposes, and such as for retirement, education, paying for a dream house among other things.

What Is The Key Benefits Of Investing?

There are so many great benefits that you stand to enjoy by opting to invest some of which include the fact that you watch your funds accumulate and grow over time, your interest comes at a higher rate unlike saving, and you are also able to convert your funds to cash quite easily.

1. Investing Earns You Higher Interest Rate

Investing rates are very massive and can skyrocket if your company assets are performing well at the exchange market, and this is much unlike saving which, when you sum up all your interest in a year, may not be up to one percent of your total savings. Frankly, investing is the king of interest and this is because there is no limit or number as to what interest you will receive. The key thing here is, your company gains, you’re gaining as well.

2. Investing Pays You More With Time Through Compounding

It is very simple. Investing your money and leaving them to stay for an extended time qualified you for a chance to bigger earns and this is made possible through a process called compound earning. Compound earning is all about reinvesting or recycling your ROI (return on investment) back into the company to bigger and more.

3. Investing Supports Easy Liquification

In investing, people sometimes worry about how they can get their invested funds or assets turned into real cash on time when they need it. This used to be a big problem many years back when the investing industry hasn’t quite developed to the stage that it is today. These days, it is no longer an issue converting or unloading your assets and getting your equivalent, whether you trade in stocks, bonds, ETFs, or other financial instruments.

Are There Shortfalls To Investing?

One of the major cons to investing is that it takes a longer time to start seeing meaningful returns unlike with savings. Also, investing, as with other kinds of business, has its fair share of risks, and there is usually no guarantee that you’re getting a return as this largely depends on the performance of your finds at the exchange market. The rule of thumb usually is, the bigger the risks you are willing to accommodate, the more your chance of getting higher returns, but generally, it is safe to always strive to minimize risks, and the one Investing feature that can help do this is diversification.

What Are The Major Differences Between Saving And Investing?

Notable differences exist between saving and investing. From the mode of access to the duration to the nature of interest amongst the two, there are more than a few discrepancies to note.

1. Saving Is Short-term While Investing Long-term

Saving, as already mentioned, mostly covers short-term projects such as planning for an emergency, or sorting your need for furniture, or car, holidays and excursions etcetera. For Investing, it goes beyond your immediate goals to extend far into the future – ten maybe fifteen, or twenty years to come. During these times, issues such as what to sustain life with after you are retired, or getting this dream house you’ve been saving up for through many years become some of the issues which can be sorted out with your investment funds.

2. Saving Is Easily Accessible While Invested Funds Take A While To Access

While you can access and withdraw your money from a savings account a few times a day and several times a week, accessing funds from your investment account is strictly regulated and not always at your reach. Investing industry is very complex and complicated with market performances of a day calculated over the next one or two days, and with NAV regulation calculations per your funds, it becomes mostly impossible to access or track your funds as easily as you do with a savings account.

3. Risks For Savings Are Minimal Compared With Those Of Investing

Savings are always somehow backed by the government should your company falter or fail to meet the terms of its expectations, so you’re very likely risking a little to put your money up for saving. However, the case is different with investing as this is a capitalist endeavour where there is no guarantee that you are going to profit from investing. You may lose some or all your money in investing. This is why you need to do a lot of background checks on investing, and also get yourself an investment professional or broker, before putting your money on it.

4. Returns For Saving Are Low While Those Of Investing Are High

Putting your money on a savings account may gain interest in returns but they typically do not amount to much at the end of the day. Putting your money up for investments in stocks and ETFs et cetera are, on the contrary, very high-yielding in terms of the interest you stand to gain by the end of the day. The logic is very simple; your savings money are not traded but instead are understood to be kept safe for you when you’re ready to pick it up. Your investment money, on the other hand, is traded daily on the exchange giving it the potential for amassing a lot of return when the curtain comes down.

Saving Or Investing, Which Is Better For Me?

Saving and investing are very important projects that you need to key into as you continue your search for financial freedom. Much like the analysis already seen in this article, savings helps sort out your short-term issues while investing helps with the long-term needs. As general advice, you can not possibly pick one over the other and not cause a problem for yourself. So, the best practice, however, is to utilize both of them where suitable and applicable as that is the only way for anyone to fully handle finance-related situations which – to be honest – we face every day, whether it’s long or short term.

It is very important to try and achieve a balance with both saving and investing. Still, they are considered as a step away from each other, meaning that you must first have been able to save up a certain amount in reserve funds before you venture into investing. So, savings are driving your dreams of investing to become a reality. And sometimes a lot of people may have enough cash reserve sitting in one savings account or the other and yielding little to no interest. That is not the best practice given that you should be able to earn more if such funds were trusted under an investment account.

All in all, when it comes to investing, which is a more complex industry than saving, make sure to find out everything you can about a particular type of fund you intend to acquire. Have professionals look into it and get advice from expert investors who can read the market for a clue on the best fund to buy.

References

CC Finance Group. “What is the difference between saving and investing?”

https://cc.com.mt/blog/education/what-is-the-difference-between-saving-and-investing/

Wells Fargo. “Saving vs. Investing.”

https://www.wellsfargo.com/goals-investing/saving-vs-investing/

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