What’s the difference between investing money and saving money? Which is the best? You don’t need a university degree to know that saving and investing are not the same; everyone knows that they differ from each other.
However, the extent to which we know these differences vary, and this may affect some crucial decisions we make in regards to our finances. Investing is a word that means different things to different people. In this article, I will be discussing at length the differences between saving and investing. Also, you will learn which of these two practices is more suitable for your personality and financial lifestyle. Now, let’s start with the differences.
1. Saving is always liquid, investment isn’t
Because your saving is always in the form of cash, you can easily have access to it whenever you need it; even when you have not achieved the purpose for which you started it. So, during financial emergencies, you will easily have some funds available. As for investing however, your assets are not in liquid form most of the time. In fact, you are usually denied access to your funds for a specified period (which could be as long as several years). So, if some financial emergencies come up, you won’t have access to your funds; not even during life-threatening emergencies.
2. Investing involves risk, savings doesn’t
Saving does not attract any risk. If you save a certain amount of money at once or over a period, you will have the same amount of money back whenever you need it. No tangible additions or deductions. What you save is what you get. However, investing involves risk. You may end up losing some or part of your investment, depending on whether your stock increased in value or depreciated during the investment period.
3. Investing increases your money, saving doesn’t
Saving simply involves accumulating money to achieve a purpose such as buy a car, fund college education, and so on. People also save just to avoid scampering during financial emergencies. So, it’s not a wealth-building practice. Investing, on the other hand, is done for wealth building purposes. If your assets appreciate during the investment period, you will make huge profits (just as you will lose if they depreciate). So, investing can make you richer over time.
4. Saving requires no technical knowledge, investing does
The process of saving your money is very simple; enter a bank or some other fund-holding institution, and deposit your money either all at once or in pieces over a period. No technical knowledge is required. Investing, on the other hand, is a more technical practice. Even though fundamental investing seems simpler than technical investing, it is still more complex than what anyone can just venture into without knowing some basics.
While fundamental investing requires that you know much about the factors and parameters that are used to determine the financial strength of a company, financial investing requires that you know how to interpret complex charts and market signals that predict the likely future performance of a company’s shares. So, investing isn’t for dummies.
5. Saving insures your funds, investment doesn’t
In most countries, including the United States, the Federal Government (through the FDIC) insures all savings and deposits held by financial institutions. So, if peradventure these funds are lost through theft, fraud, or other means, they will be refunded. As for investing, there are no insurance policies protecting investors’ principals from loses. You could lose some or part of your investment even if you purchase them through a bank.
Now, which is better?
Well, this depends majorly on two things:
- Your goals
- Your spending habits
If you have goals such as buying a car, raising an emergency fund, funding your college education, buying a car, etc, then saving is the better option for you. But if you have long-term goals with your funds, such as a blissful retirement, then investing is better.
Now, check your spending habits. If you are a heavy spender, and you just cannot afford to part with your funds for too long, then investing would only bring you regrets. Only save your money, so that you will get it whenever you need it. But if you don’t have much expenditure and you have got funds to spare, then investing would no doubt be a smart option for you.
To a lesser extent, certain personality traits also dictate which of the two practices is better for you. If you are always fretful whenever the idea of investing comes up, then that’s enough indication that you can’t cope with it. But if you have high tolerance for risks and loses, then you’re good to go into the world of investing.