Savings and Investments - Know the Difference Between Savings & Investing

Save or invest

Let's first learn the basics of saving and investing before we begin our journey to financial independence. An investor who is disciplined creates a balance of the two.

Saving refers to the act of storing hard cash in liquid and safe securities. Capital preservation should be the primary goal. If possible, the secondary goal should be to earn some returns. This could include certificates of deposits and savings accounts.

Investing refers to the use of money/capital to earn a safe and acceptable return over time. A variety of investments include stocks, mutual funds, small businesses, real estate, and gold coins.

You can tell the difference between investment and saving

Savings

• Ideal savings are smaller for immediate goals such as a vacation or an emergency.
• High liquidity means that cash is always at hand.
• There is usually no risk.
• Your savings can earn interest.

Invest

• It is the act of putting money to use to build wealth and achieve long-term goals such as a child's education or a house.
• When you invest money, liquidity is often not an easy thing.
• There is a high risk involved.
• When investments appreciate over time, they can yield higher returns.

What amount should one save or invest?

Savings are the foundation for achieving your financial goals. You will have the capital you need to make your investments. These are the two essential principles that you should follow.

• Your savings should be sufficient to pay for personal expenses such as loan payments, insurance premiums, and utility bills. Any unforeseen expenses.
• Investment driven should be used for any purpose that will require large funds in five to ten years. For eg. For example, a steady investment goal today is required to purchase a home in five years.

Define your goals

• Your primary goal when saving is to protect your money and not lose any of it. Although saving money can preserve its nominal value but it doesn't have the potential to grow,
• You give your assets the potential for growth over time by investing. You reinvest interest, dividends, and other capital gains. You are more likely to be willing to take on risks when investing your money. However, with an increase in money comes the possibility of losing it. To recover from any loss in value, it is recommended that you keep your money for a long period of time.

Take a look at the options

These are some savings options:

• Savings accounts
• Money market accounts
• Certificate of Deposits (CDs).
• Bonds

There are many investment options available:

• Individual Securities, such as stocks or bonds
• Mutual funds and pooled investments
• Real Estate
• Gold

How to make your financial planning work for YOU