Investing vs Saving

We often use the word 'saving' and 'investing' interchangeably and believe it to be alright. We mistake the two as synonyms and use them without any precaution. Every Investment is a subset of Saving but the other way round is not always true.

So, how do we categorically differentiate between the two? Why is it important to understand the difference between them. Today, we would mainly like to highlight on these two points.

The Merriam Webster definition of Saving goes as “an amount of something that is not spent or used” and for Investment goes as ” the outlay of money usually for income or profit“.

So, every amount that is saved is not necessarily invested. Hence, when in financial planning we talk about saving it is more related to your survival instincts and when we talk about investment it is about your goal achievement. In simple words, savings is acceptable for short term requirements whereas for long term,we should think of investing them. A person, who just manages to meet his expenses talks more about saving and not about investment. On the other hand, a person who has a healthy surplus of savings talks about investment to get better returns.

Why is Investment necessary? 

 

Lets take a simple example, we may have some extra dal – rice over dinner, which keep back in refrigerator for next day consumption. However, on next day due to some reason,we can't eat it, we prefer to give it away. We don't store it for weeks together unless it we are running tight on our monthly budget. Just like this, we can hold our saved money only a few days in our bank account or locker but beyond a certain time, it needs to be kept in a better savings avenue. In simple words, it needs to be put for a better use than storing it back.

Thus, as a planner whenever someone points to us that we are saving well for our family future, we quickly correct them to invest well rather than simply saving it. An asset can rise to its full potential only when it is put to a proper end use and earn a better return potential.

Lastly, lets look at some of avenues to save and invest :

For short term savings, we can look at :

• Savings accounts
• Money market accounts
• Money market mutual funds

For long term investment,we can look at :

• Stocks & Shares- Direct Equity
• Fixed Deposits
• Mutual Funds & ETFs
• Small Saving Schemes
• National Pension Scheme
• Real Estate
• Precious Metals

So lets all look at making the most of our saving and invest it in the right manner to help us achieve all our goals. Contact us at saarthifp@gmail.com to understand your goal planning.