Differences between Saving and Investing

Saving and Investing sometimes are used interchangeably but there are differences.

Saving refers to putting money aside for future use rather than spending it immediately thus involving low risk and low returns while Investing refers to putting money into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit.

Below are the differences between Saving and Investing

Purposes

You could be saving towards getting a new house, paying house rent, buying a car or for any financial emergencies, etc. Financial institutions offer several different savings options. We also have some savings mobile apps that you can use to automate your savings whether daily, weekly or monthly. The higher the income of a person, the higher is his capacity to save. We can also say that it is not a person’s ability to save that encourages him or her to save money, but the willingness to save compels him or her to do so.

On the other hand, you can invest your money in stocks, property, real estate, shares in a mutual fund etc. Investments are usually done to achieve long-term goals. Hence, it is categorized as income investment or growth investment.

The purpose of saving is to fulfill short-term or urgent requirements while investing is done to provide returns and help in capital formation.

Risks

The risk associated with investing is very high while saving is low or negligible

Returns

Returns are comparatively high for investing while there is less or no returns for saving

Liquidity

Liquidity is high in savings because you can have access to your money anytime, but in the case of investment, you cannot have easy access to money because the process of selling the investments takes some time, hence, less liquidity.

PS: Making a choice between either saving or investing will depend on your goal(s) for the money and your risk tolerance.

Personal Finance – Why it is important

Personal Finance is defined as the management of money and financial decisions for a person or family including budgeting, income generation, investing, spending, saving, retirement planning and investments.

We will be focusing on explaining the most important areas of personal finance. The most important areas are;

  1. Budgeting: This is a process of creating a plan to spend your money. Budgeting ensures that you have enough cash for the things that are important to you and the things that you need.

Having a budget and following it will keep you out of debt. And if you are in debt already, this will help you work your way out of it. The good thing about budgeting is, when you know where your money is going, you can crush your money goals faster.

  • Income: This is the money that an individual or business receives in exchange for providing a good or service or through investing capital.

It is the starting point for our financial planning process and there are several sources of income that generate cash that individuals or businesses can use to either save, invest, or spend. Some of which are; salaries, wages, pensions, bonuses, dividends.

  • Investing: In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will later be sold at a higher price for a profit. Though investing carries risk but having the mind to invest makes you stay ahead of inflation, helps you build wealth etc.
  • Spending: This is the money that is used for a particular purpose. You either by cash or by credit. Managing expenses is just as important as generating income. If expenses are greater than income, then an individual has a deficit. Good spending habits are critical for good personal finance management.
  • Savings: This refers to the money put aside for future use rather spending it immediately. Managing savings is a critical area of personal finance. If there is a surplus between what a person earns as income and what they spend, the difference can be directed towards savings or investments. Savings helps you in emergencies, limits debts, gives you financial freedom, etc.

Good financial management comes down to having a solid plan and sticking to it

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