Most people don't know much about the difference between saving and investing, so many people refer to their investments as savings and vice versa. If you are interested in one of the two fields, you must first understand the differences that distinguish both.
In our article for today, we will try to present a comprehensive concept for each of them, and then we will discuss the most important differences between investment and savings.
The difference between investing and saving
| Target | |
|---|---|
| Inv | Is to increase capital in the long term or build future wealth. |
| Sav | Achieving short-term financial goals or covering unplanned expenses |
| Duration | |
| Inv | Returns rise as the time period increases. |
| Sav | Short term. |
| Returns | |
| Inv | Potential to earn high returns. |
| Sav | Minuscule returns. |
| Liquidity | |
| Inv | Investing does not provide automated liquidity except in some cases such as liquid mutual funds. |
| Sav | ------- |
| Risks | |
| Inv | Risks such as failure and operational requirements |
| Sav | Risks such as inflation and depreciation |
| Options | |
| Inv | Investing has different options that are controlled by capital |
| Sav | Certificates of Deposit, Savings Accounts… |
Which is better? Saving or investing?
Despite the difference between investing and saving, there is no better option than the other, as it all depends on your financial situation, your goals, and your willingness to take risks.
Saving may be the most suitable option for you if you need money in the short term, but if you aim to develop your wealth in the long term, we advise you to invest.
When do you choose one of them?, and how you do it?
As we mentioned earlier, there is a difference between saving and investing. The first allows you to put your money in a safe place until it is used in an emergency, while the second offers you the possibility of earning high returns in the long term by purchasing assets that increase in value.
If you are confused about the step that you may take, then read this part of the article on the difference between investing and saving, which will tell you when and how to choose between them.
When do you save?
Financial advisors advise that you should have some cash for emergencies, so saving may be an ideal option for you if you:
- No emergency savings: You should set aside at least one month of living expenses before diving into the investment world.
- Need the cash in five years or less: You may have set your sights on a down payment on a new house or car. Either way, your money will stay in your savings account whenever you need it.
When do you invest?
Experts advise investing if your financial goals are long-term, or if you:
- Have a full emergency fund: If you've met the six-month rule that you save enough to cover six months of your needs after losing your job, for example, you can invest with your remaining money.
- You have long-term goals: If your goals exceed the five-year barrier, such as retirement, then you should consider investing from now on.
Recommendation
If you want to protect the money you have earned during your long and hard work, you need to learn more about the difference between saving and investing and this will only lead to achieving your savings goals first.
But also, at this stage, it is necessary to obtain financial advice from an acc#cccited financial expert, and you can also develop your financial culture by following up and reading in this field before you rush to invest.
There is an invaluable wealth of knowledge on the subject of investing available on the internet and in print books, but beware of delusional sellers and scammers, and don't rely on a single solution to invest your money; Think wisely and ask however you will, but only trust your instincts and judgment.