Savings and Investments are terms that might seem related, yet refer to different actions. Don’t get muddled between the two, for each can lead to a very dissimilar outcome from one another. Many investors fail to recognize that saving and investing money are utterly different things with all the more different purposes. They play different roles when it comes to your financial strategy and balance sheet. If you end up saving money while you’re supposed to invest it, or vice versa, you could get sternly handicapped to reach up to your financial goals.
Making sure you are very clear on the fundamentals before you begin your journey towards building wealth and attaining financial independence is vital since it can save you from a lot of undesirable future strain.
Thinking of saving by putting aside some money for fulfilling a short-term goal – could be a holiday, shopping or down payment on a new car are perfect examples of short-term goals towards which you’d want to save. On the other hand, Investing is setting aside money for a long-term goal which is at least five years away, could be your child’s education or a dream home to be bought.
Save or Invest?
When you save money – be it in cash, your bank account or say building society account, you’re keeping aside that cash for an unexpected financial crisis. Either this or you’re probably saving it for something in particular like buying a new car or for your wedding. It’s the same as putting your money in your savings account instead of a piggy bank that you used in your childhood. On the other hand, investing is all about taking a step towards wealth creation.
When you invest, you’re buying new assets that you presume to have a better value in near future, in return giving you an income. Of course, there’s also a likelihood of losing this money, but that’s what investments are all about – taking huge risks. However, you can make investments basis your risk appetite and the one that is appropriate for you.
What is on your priority list?
Before you begin investing or saving, it is important to understand whether you’re ready for it. For instance, if you’ve got debts untouched, or you’re finding it challenging in making ends meet, you’ll need to prioritize and attend them first. It is suggested to have accessible cash as well as an emergency fund to back you up which could crop up from time to time.
If you can do this seamlessly and have some disposable income, you can then think about keeping aside some money each month.
Undoubtedly, some goals won’t be fulfilled within 5 years or shorter, or 10 years and longer; but the best course will be a mix of investing and saving. Hence, it is important to plan your financial goals well in advance and figure out when you need to use the money you have been keeping aside.