Understanding the difference between saving and investing is essential to ensure financial security and a bright future. Though these terms are sometimes used interchangeably
If you also think these both are same then let me correct you…
YOU ARE WRONG !
First let understand in simple word what these both mean in depth.
Most people use savings and investing interchangeably while both are different steps of financial strategy. Both are entirely different things, carry different purposes and playing different roles in your financial strategy. Before you begin your journey to building wealth and financial independence, make sure you are clear on this fundamental concept.
Saving in simple word is keeping aside specific amount of money that you earned from your business, profession or other sources. Example of this is like budgeting, cash hoarding, putting money in Bank Account.
The primary goal here is to build an emergency fund, which can be used in case of unexpected expenses or job loss. Having an emergency fund is a crucial part of financial planning, as it provides a safety net in case of unexpected financial hardship.
In addition to an emergency fund, it can also be used to reach short-term financial goals, such as buying a car or taking a vacation. To save for these types of goals typically involves setting aside a specific amount of money each month, often with a set deadline for achieving the goal.
Investing in not separate thing then saving, instead it is next step to it. Investing is putting your saved money in the instruments that grow at the pace higher then inflation. Example of this is Real Estate, Equity, Bond etc.
Investing typically involves taking on more risk than saving, as the value of investments can fluctuate over time. However, investing also has the potential for higher returns than saving, which can help to build wealth over time. One key advantage of investing is the power of compounding, which allows investments to grow exponentially over time.
Comparison
| SAVING | BASIS | INVESTING |
| Is basically is Short Term | Purpose | Is for Long Term |
| Involves very less or negligible risk | Risk | Involves medium to high risk based on instruments of investments |
| Returns are very less & can be nil in some instances | Returns | Gives you good returns & some instruments like equity can give you amazing return |
| Has high liquid efficiency | Liquid | Has moderate liquidity, as some investment such as Real Estate can not be easily & immediately liquidated |
| Unfortunately is unable to beat inflation as return is very less & for some case it can be negative, such as keeping in form of hard cash. | Beat Inflation | Certainly beat inflation. Returns are at par or above the inflation. |
| Cash, Bank Account, Fixed Deposit, Recurring Deposits as some example. | Instruments | Real Estate, Equity Stock, Bond, Mutual Fund, Gold etc. are some example. |
So, how do you decide whether to save or invest? The answer depends on your financial goals and your risk tolerance. If you are doing it for short-term goals, such as an emergency fund or a down payment on a house, saving is likely the better choice. These types of goals typically require a low level of risk, as you need to be able to access the funds quickly and without losing value.
If you are doing it for long-term goals, such as retirement, investing is likely the better choice. These types of goals require a higher level of risk, as you have more time to weather market fluctuations and allow your investments to grow over time. However, it is important to note that investing always carries some level of risk, and it is important to carefully consider your risk tolerance before investing.
Best Use Case
| SAVING | BASIS | INVESTING |
| This is a superior option, as it is less risky & very liquid in nature. | Short-Term | Better to avoid your short term fund requirement, as returns might be fluctuating & also ill-liquid. |
| Still this is a better option to park funds as certainty is there in relation to returns & no risk. | Mid-Term | It can be chosen for diversity. Better not to park an emergency fund. |
| Absolutely conservative returns but assure no risk | Long-Term | Now this can be the best option to park the amount which you would require a long time after. |
In summary, saving and investing are both important components of a sound financial plan. One is the process of setting aside money for future use, while other involves putting money into assets that have the potential to grow in value over time. The decision to save or invest depends on your financial goals and risk tolerance. One is typically better for short-term goals, while other is better for long-term goals. However, both should be a part of any sound financial plan, as they can help you to achieve your financial goals and build long-term wealth.