1. Build your Credit Score
2. Reduce your Current Borrowing / EMI Costs
Even seasoned investors sometimes have trouble deciding where to put their money: in Savings or in Investing. The thing is that these two fulfil different functions and fulfil different needs. For instance, if you want to grow your wealth, investing may seem like the better option. And if you want to save your money, going for a Savings account is certainly your best bet.
Basically, it is all easy to understand, and yet many people still get confused. One of the reasons for this is that either way, people are parting with their money, even if for a short time. This makes many people indecisive, something which is important especially if you want to go down the Investing path.
These are the common questions people have about Savings and Investments.
What is investment?
What is savings?
Where should one invest?
Where should one save?
The problem is that there is no one answer for everyone. It all depends on your individual needs and financial plans for the future.
In this article, we shall be giving you a basic know-how of both savings and investments, what their differences and benefits are, and how you can use them.
First, let us learn about Savings.
Basically, saving is not spending your money, or rather the money you do not have any desire to spend. Now, this has many benefits. For instance, if you have saved enough, you will be able to deal with healthcare and other situational crises better than those who don’t save. Saving can also enable you to splurge now and then. While you may not be able to buy a car with just your savings, you may be able to splurge on pretty big purchases from time to time.
Investing refers to the processing of earning money or building wealth through buying assets. This can be for the short-term as well as for the long-term. Investing is far more risky than saving money yourself, but the rewards are greater as well. There is always risk when you are investing, but know that the best investment instruments come with a certain safety margin, generally as assets. The best options for investment are stocks, real estate, bonds, mutual funds, and others.
There are several benefits in Investing, despite its obvious risks. And look, even saving has some risks, although such risks are different. For instance, you may believe what you have saved up is enough, but during moments of need you may find your savings is not enough at all. Now, let us see the benefit of investing.
Your money creates money: When you invest your money, the same money earns you even more money! Isn’t that magical? This happens due to the increase in price or value of stocks, mutual funds or other instruments you own. Thus, you earn a profit when an instrument you own can be sold at a higher price than what you bought it for.
You save tax: When you invest for the long haul, you save on taxes.
You benefit with compound interest: Compounding is said to be one of the wonders of the modern world. Rightly so, because it allows your invested money to keep growing in mathematical progression. This gives you a big profit over time. Compounding creates wealth for you, and doubles it in much less time.
You stay ahead of your personal finance yardsticks: If you are new to investing, it shall allow you to buy things others cannot. Besides, your investments work as a safety net during unforeseen emergencies.
Saving only preserves your money, but there is no growth to that. Investment makes your money grow over time. Thus, your money works for you, and that is a huge benefit! Yes, there is little risk in Savings and there is considerable risk in Investment, but it all matters what your financial goals and plans are and what your risk tolerance level is. Investing gives you higher returns over time, which savings does not. Savings is for a shorter time while investment is for a longer period of time.