SAVINGS VS INVESTMENT: 3 things you should know
What is savings?
Savings refers to income not spent. It represents a net surplus of funds for an individual or household after paid expenses and obligations. People may save for various life goals or aspirations such as vacations, retirement, buying a home, car, etc. Savings are kept in cash or cash equivalents, which are not exposed to the risk of loss. However, savings can be grown through investment.
What is Investment?
Investment means allocating money with the expectation of a positive benefit in the future. It means owning an asset to generate income from the appreciation of your investment, which increases the value of your asset over some time.
Investment or savings: which is better?
Saving and investing are both important concepts for building a sound financial foundation, but they’re not the same thing.
Saving is definitely safer than investing, but Investing is better than saving. Saving will not result in accumulated wealth. When you are saving money, you can easily pull it out when you need it. Whereas when you are investing, you have the potential for long-term gains and losses. The primary difference between Savings and Investment is just the Profit margin and risk factor. So basically, Saving is safer but less profitable, and investment is risky but very profitable.
Savings = Zero Risk investments + Low-profit margin.
Investing = High Risk + High-Profit margin.
Having adequate savings is essential, but so is long-term financial security. Once savings thresholds have been reached, individuals should immediately begin investing. Savings alone may not cover the cost of a long retirement. Investments, while riskier than savings, have more growth potential.
Should I save first or invest first?
Before thinking of saving or investing, you must have a goal you want to achieve. Deciding whether to save or invest for a particular goal can be difficult, but it all depends on your goals.
Goals can be short term or long term
- Short-term goals: A short-term goal is something you want to do in the near future. The near future can mean today, this week, this month, or even this year. A short-term goal is something you want to accomplish soon. If you have a short-term goal, then save. With saving, there is no risk of your balance decreasing and your money will be readily available when you need it.
- Long-term goals: A long-term goal is a goal you want to accomplish in the future. If your goal is a long-term goal, then invest. Investing provides an opportunity to get greater returns if you have a long time horizon and can delay your goal if things don’t go as planned. If investments are down at the time when you originally planned to reach your goal, delaying by some years could result in your investments returning back to a higher value.
Differences between Savings and Investment
| BASIS OF COMPARISON | SAVINGS | INVESTMENT |
| Meaning | Savings represents that part of a person’s income that wasn’t used for consumption. | Investments refer to the process of investing funds in capital assets, intending to generate returns. |
| Purpose | The purpose of savings is to fulfill short-term goals or urgent requirements. | The purpose of investment is to fulfill long-term goals: To provide returns and help in capital formation. |
| Returns | Low returns | High returns |
| Risk | Very low or negligible risk | High or medium risk |
| Liquidity | High liquidity | Low liquidity |
Savings refers to income not spent. It represents a net surplus of funds for an individual or household after paid expenses and obligations. People may save for various life goals or aspirations such as vacations, retirement, buying a home, car, etc. Savings are kept in cash or cash equivalents, which are not exposed to the risk of loss. However, savings can be grown through investment.
Investment means to allocate money with the expectation of a positive benefit in the future. It means owning an asset to generate income from the appreciation of your investment which is an increase in the value of your asset over a period of time.
Investment or savings: which is better?
Saving and investing are both important concepts for building a sound financial foundation, but they’re not the same thing.
Saving is definitely safer than investing, but Investing is better than saving. Saving will not result in accumulated wealth. When you are saving money, you can easily pull it out when you need it. Whereas when you are investing, you have the potential for long-term gains and losses. The basic difference between Savings and Investment is just the Profit margin and risk factor. So basically, Saving is safer but less profitable, and investment is risky but very profitable.
Savings = Zero Risk investments + Low-profit margin.
Investing = High Risk + High-Profit margin.
Having adequate savings is essential, but so is long-term financial security. Once savings thresholds have been reached, individuals should immediately begin investing. Savings alone may not cover the cost of a long retirement. Investments, while riskier than savings, have more growth potential.
