Savings Vs Investing: Understanding The Fundamental Differences

Savings Vs Investing: Understanding The Fundamental Differences

Our financial future is often secured by two key concepts: savings and investments. In spite of the fact that they both aim to save for the future, savings and investments have different goals and potential outcomes. A savings account keeps your capital safe, gives you access to cash right away, and offers stability and security. While investment aims for long-term growth and higher returns, it comes with a higher level of risk. 

It's important to know the difference between savings and investment if you're going to make financial decisions in online share trading. In this article, we will understand what is saving vs investing, the saving and investment differences in detail, and the right amount to save and invest.

What is Savings?

Remember how our parents and grandparents taught us to save money for our future to live a financially hiccup-free life? We were not allowed to touch this money unless it was absolutely necessary. So, basically, savings means you put some money aside for future expenses. 

By doing this you become financially disciplined. Moreover, you will be glad you have a savings fund when things get tough. There are several ways to save money in India, such as a savings account or a fixed deposit with a bank.

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Table of Content

  1. Investing and Saving: How Much Should You Do?

What is Investing?

Investing involves buying assets with the expectation they will generate significant returns over time. However, most investments come with a certain amount of risk. Often, the riskier the investment, the higher the return. You can invest in mutual funds, stocks, bonds, and real estate, they are popular investments.

Gold and real estate were popular investment options when our parents were young. These investments require more capital. Today, there's an option for everyone, whether you're a risk-averse investor or a high-risk taker. Your only thing to do is identify your goal, evaluate the asset, and make sure it fits your goals.

Difference between savings and investment

After understanding what savings and investment are, let's look at what the difference between savings and investment is. It's important to start saving and investing when you're young. However, people get confused about saving with investing. Both are very different, though. Here is the saving and investment difference:

Basis 

Investing

Savings

MeaningPutting money into financial products and assets with the expectation of profit.For unforeseen expenses, money is set aside after all expenses are met.
RiskHigh Low or zero
PurposeCreation of wealth and capital appreciation.The solution for a rainy day or an unforeseen event.
LiquidityLiquidity is low compared to a savings account.It has the same liquidity as holding cash.
Time horizonLong-term Short-term 
ReturnsHigh returnLow return in the form of interest
Asset typeLong-term asset. It is suitable for goals such as a child's education, marriage, and home purchase.Short-term asset. You can use this to purchase furniture, and appliances, or meet emergency needs for a short period of time.
ProductsYou can invest in stocks, bonds, mutual funds, gold, real estate, etc.There are savings accounts, certificates of deposits, money market instruments, etc.
Protection against inflation Protects you from inflation.There's not much inflation protection.
Account typeBrokerage Bank
Difficulty

It's difficult to understand, invest, and keep track of investments.


 

Saving is easy

Briefly, the difference between savings and investment is based on the objectives, the time horizons, the levels of risk, and the potential returns. Savings provide stability, accessibility, and protection against unforeseen circumstances, while investments target long-term growth, wealth creation, and higher returns. 

The difference between savings and investment helps individuals make well-informed decisions, ensuring their financial future through a balance between saving and investing.

Investing and Saving: How Much Should You Do?

In terms of saving and investing, there's no hard and fast rule. It is possible to save and invest at the same time. Also, it is not necessary to wait until a savings goal is achieved before investing.

According to financial experts, 10% of income should be saved. However, depending on your expenses, you can save more or less. In terms of investing, 10%-15% of the income can be allocated between multiple investment vehicles.

Moreover, savings and investments can be started as soon as you receive your first paycheck. Decide on the amount of expenses and prepare a budget. Make sure you stick to your budget and don't overspend. Based on your expenses, determine how much you can save.

When investing, seek the advice of a certified financial planner or advisor. Additionally, invest for the long term to reap the maximum benefits from your investments. Moreover, as income increases, increase investment amounts to beat inflation. 

In the long run, the sooner you begin investing, the larger the corpus you will be able to accumulate. Further to begin investing, make sure you have sufficient savings for emergencies and rainy days.

Conclusion

There's a difference between savings and investments based on goals, risk levels, and time horizons. Savings are for unforeseen expenses, while investments are for long-term wealth creation. Savings offer stability and accessibility, while investments can offer higher returns with higher risk. Depending on your financial goals and circumstances, it's important to balance saving and investing. Moreover, it's best to start early and get professional advice if you want a secure financial future.

Difference between savings and investment FAQs

The first step is saving, even though saving and investing are necessary to ensure your financial security. Saving allows you to invest and grow your money.

Saving money keeps your money safe, and you can access it easily. By investing, your money grows in value, benefiting from the magic of compounding.

Investing works when you buy something at a low price and sell it at a higher price. Investing in something and getting a return on it is called a capital gain. You can make money investing by selling assets at a profit or making capital gains.

In India, mutual funds make good returns, so they're always a good investment. Generally, people save to meet short-term financial needs, like those that come up every 1-3 years, while investors invest to meet long-term financial goals.

The stock market is too complex for students, so they can start by investing in mutual funds managed by professionals. You can explore equity funds if you like risk. In contrast, debt funds could be your best option if you're submissive.