Savings Vs. Investing
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Saving and investment, both, are seen as essential financial actions to live a successful life. But what we fail to recognize is the difference between the two. We often believe that if we are saving money from our income every month, we are investing in our future. But here is where we are wrong. Our savings are the portion of the money we set aside. Whereas an investment is the purchase of goods that are not consumed today but are used in the future to create wealth.
Now the question is should you just save money, or invest this amount?
To get a better view, let’s compare.
When we save, our total money remains the same. That is, if we don’t spend the amount we save, we will still have that same amount for eternity. On the other hand, investment means growing money. For example, if we save Rs. 15,000, we will have Rs.15,000 next year as well. However, if we invest this Rs.15,000 in an investment product that gives a 10% annual return, we will have Rs.16,500 next year.
When deciding between saving or investing money, it is also important to look at the rate of inflation. Inflation is simply the increase in the prices. Now let’s assume that we saved Rs.15,000 for a plane ticket last month. If there is inflation this month, then Rs.15,000 will no longer be enough for that same plane ticket. Hence at this point saving is actually bringing us a loss. But if we invest this amount, we can turn our loss into profit. This is because along with inflation, our money will be growing too. And if the return rate on our investment is greater than inflation, then we will not only be able to afford the plane ticket but enjoy some extra money as well!
In a nutshell, investment helps in growing money. This means it can help us achieve our financial goals faster. The best example is retirement. Even though we gradually save through our work life for retirement, an investment can speed up this process. Meaning we can easily achieve early retirement if we make a wise investment!
For beginners saving can be a little tricky, and investment a bit risky. But we have got you covered for this! Click here to read more on the basic steps of saving, and visit our website to learn more on investment!
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Read Time: 4 Minutes
