Saving Vs Investing - What are the differences?
A healthy financial status is a sign of prosperous life. To ensure that one must set his/her financial goals at the earliest. When it comes to financial goals, we are familiar with these two terms Saving and Investing. Knowing the subtle difference between the two will help you become financially prudent.
Definition of Saving
Saving could mean an amount left over after your personal expenditure which can be stored on a regular basis to fulfill your short-term goals. While you have fewer risks of losing money in saving, you can't expect a bigger return. We save money for purchases or emergencies. We put a timeline and value for our saving. You earmark a certain amount within a stipulated time for purposes like buying a vehicle, long trip and much more.
Definition of Investing
Putting money in financial schemes like bonds, assets, stocks, and funds can be investing. It has the potential risk of losing the capital in short-term but it is worthwhile in the long run for greater returns. Investing in a property is sure to bring a greater return if the holding period is longer.
Saving Vs Investing
Everyone will have a question of which is best to go with saving or investing. It all depends on your priority and need. However, saving is more important than investing as you need to have sufficient money to cover your needs like insurances, mortgages, food, utility bills and clothing expenses for at least six months.
On the other hand, investing is essential to satisfy your long-term goal. Choosing the better option wisely will give you better returns. For example, you start investing a certain amount in the earlier stage for your son's college education. After 15 to 20 years, you won't have a burden of looking for a huge amount of money. This will truly be a worthwhile investment to cherish about.
Where can we draw the line between Saving and investing?
Under 7 years can be considered a saving while more than 7 years can be taken as the investment. However, saving has no potential risk of losing the money while investing is not advisable if your deadline is a short-duration. Investing can be a boon in times of retirement as you do not have to depend on anyone for your basic needs.
From the above factors, we can conclude that both saving and investing have different aspects and purposes. Both are essential to managing our financial needs. Careful planning and better decision-making will help you live a trouble-free life.