written by | May 16, 2022

Investment and Savings: What's the Difference?

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Table of Content


Savings and investments should begin as soon as one begins to earn money. Many people mix up saving with investing. Both, though, are completely different. When someone saves money, they lay aside a portion of their earnings for contingencies or future usage. They don't get a return on their savings. Whenever one invests money, they expect a return to achieve their objectives. This article discusses saving, investing, and the distinction between the two.

Did You know?

Investment plans, on average, provide better tax benefits than savings accounts. PPFs, Fixed Deposits, National Pension Schemes, Senior Citizen Savings Schemes, and life insurance are the most commonly trusted and effective tax-saving investments accessible in India.

What Is Savings?

Saving means putting money away for future bills or requirements. It is the first and most important step toward living a financially responsible lifestyle. During rainy days, the savings fund is a godsend. In India, a savings account or a bank fixed deposit are two popular savings choices. It's equivalent to having cash on hand. Our grandparents and parents have always believed in putting money aside for their children's future to provide them with a good lifestyle. That was what kept them going, and they didn't touch their funds unless it was necessary. While most of us today want to spend our money and adhere to the 'YOLO' trend. Yes, you only get one chance to live (YOLO). The goal, however, should be to live without any financial difficulties.

Once in a while, going on a buying binge or exceeding a monthly budget is OK. Being fiscally disciplined, on the other hand, by rigidly setting away some money for unanticipated circumstances is prudent. It is recommended that you save between 20% and 35% of your monthly income. The greatest strategy for the future is to have a 3-12 month emergency fund.

The main purpose of setting up a savings account should be to satisfy particular goals that you expect to attain shortly. Alternatively, make yourself less exposed in the event of a financial emergency. Alternatively, you may save for a product that requires a substantial lump sum outlay.

Saving all of your earnings will not make you wealthy. Savings is just the difference between your income and your outgoings. While investing entails dedicating a portion of one's savings to assets to build long-term wealth. To be able to earn big returns, it would be beneficial if you wisely combined your savings with investments.

Also Read: What are the Best Ways to Save Money?

What Is Investment?

Investing in purchasing assets with the expectation of receiving considerable returns over time and, as a result, increasing wealth. Most investments, however, are fraught with danger. It is commonly stated that the larger the risk, the higher the reward. The finest investments have a safety buffer, which is typically represented by assets. Some of the most common investing alternatives are equities, bonds, property investment, and mutual funds.

During our parents' generation, real estate and gold were the most popular investment options. These investments necessitate a larger sum of money. To put it another way, these investments necessitate a significant lump sum payment. They have toiled and saved for years to amass enough money to buy gold or property investment.

However, for as little as ₹500, anyone may begin their investment adventure from the comfort of home with only a few clicks. Investing in goals will assist you in keeping financial discipline as well as achieving your objectives with ease.

With so many investment options currently available, any investor can find something that suits them. There are possibilities for everyone, whether you're a risk-averse investor or a high-risk taker. All you have to do now is determine your goal, evaluate the item, and ensure that it meets your investment objectives.

Investing is a long-term activity that necessitates patience as well as thorough research on investment goods. Because stock and equity-related investments are very volatile, they require a long-term investment horizon to average out market shortfalls. Debt investments, on the other hand, are better for risk-averse investors and are good alternatives to standard bank investment options. To be able to generate significant returns, you should combine your savings with investments.

How Are Savings and Investments Similar?

In many ways, savings and investment are similar in that they both aim to help you acquire money for future use. Savings and investments, in essence, have a monetary value that resides within financial instruments. To save money, both use specialised accounts with a commercial bank. Both require financial planning, which includes an examination of your financial objectives.

Difference between Savings and Investment

  1. Objective - The most significant distinction between the two is the goal of saving and investing. Short-term savings are utilised for emergencies and purchases, and they don't require much investigation. Investments are undertaken to attain larger aims such as wealth creation, education funding, homeownership, and so on. They frequently necessitate long-term commitments as well as market research.
  2. Inflation protection: Cash in a savings account loses value as inflation rises, but investments are good financial items for combating inflation.
  3. Returns: The interest you earn on your savings is usually fixed and consistent. Investments, on the other hand, have far bigger profit potential.
  4. Risk: Savings have very minimal or non-existent risk. Savings accounts such as FDs, RDs, and savings bank accounts will always pay you a consistent rate of interest. Investments, on the other hand, carry a significant level of risk because their value can change based on market circumstances and other economic and financial considerations.
  5. Liquidity: Savings instruments often have high liquidity. As a result, they give you rapid access to money whenever you need it. Investments, on the other hand, typically offer little liquidity, thus, financial experts advise against investing your emergency savings.

Saving or Investing? The better option

Your financial situation, risk tolerance, and financial goals will determine whether you should save or invest. You could, however, consider following these two guidelines:

  • A savings account is a good option if you need money quickly, perhaps within a year or two, or if you want to start an emergency fund.
  • If you want to build your wealth over time, you should consider investing.

There is no hard and fast rule for how much one should save and invest. Saving and investing can both be done at the same time. It is not necessary to wait until a savings target has been met before beginning to invest.

Financial gurus recommend that 10% of one's income be set aside for savings. However, depending on your spending habits, you may be able to save more or less. When it comes to investing, 10% to 15% of your income might be spread among a variety of investment vehicles.

From the first payday, one can begin saving and investing. Always make a budget and settle on the amount of money you will spend. Always stay inside your budget and avoid overspending. Then, based on the expenses, determine the amount saved.

Take the advice of a professional financial counsellor or planner when making an investment decision. To maintain financial discipline, automate your investments. To get the most out of your investments, invest for the long term. In addition, if your income rises, raise your investment to keep up with inflation. The earlier one begins their investment adventure, the higher the long-term corpus they will be able to build.

It's vital to remember that you should only start investing when you have enough money set up for emergencies and rainy days.

Also Read: The Rewarding World of Money Earning Websites

Conclusion

The terms saving and 'investing' are frequently interchanged. The underlying difference between the two terms, and hence the two notions, has greatly eroded as people refer to their assets as their life savings. However, it is important to recognise that these are two distinct notions that act in tandem.

We hope that this article has explained to you in detail the difference between savings and investments and which is the better option, and which one to choose. 

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FAQs

Q: Should a person stay invested in highly volatile markets

Ans:

To determine how an investor will react to market risk, any financial advisor will ask a few questions. The investor will either be patient and wait for the market to settle down, or he or she will respond quickly and take action. When an investor reacts to tiny or large market swings by withdrawing money from an investment, the investor has a poor grasp of risk. However, if an investor is patient enough to let their investment portfolio ride out the market's ups and downs, they have a strong grasp of risk.

Every investment, whether high or low risk, entails some level of risk. The financial market offers a wide range of investment products to meet the needs of various sorts of investors. There are financial products with low market risks and ones with significant market risks. Investors must select the investment option that best suits their needs.

Consider yourself ready to invest if you are willing to face some risk in exchange for a profit. Here are some suggestions for avoiding disastrous investments.

Q: Can we commit to investment for 3-5 years or longer?

Ans:

Financial objectives might be short-term or long-term. Financial commitments are not required for short-term financial goals that will be achieved in the next year or two. Investors must stay involved in financial goals with a longer investing horizon, such as five years or more.

Few investments have an obligatory lock-in term, leaving investors with little choice but to remain involved. Some investments, on the other hand, do not have a lock-in period, but investors must commit for longer periods to meet their financial objectives.

If you can dedicate your money for extended periods to achieve your financial goals, you should consider beginning your investing adventure.

Q: What is the need for an emergency fund to cover expenses of uncertain times?

Ans:

Establishing an emergency fund is a good place to start when it comes to investing. The emergency fund will assist in covering all expenses in the event of a disaster, such as the loss of a job or a family member being ill. At least 3-12 months of spending should be saved in the emergency fund.

Only three months' worth of costs can be saved in an emergency fund for a family with multiple earning members who have strong job security. However, a family's main breadwinner with low job stability should have at least 6-12 months' worth of expenses set aside as an emergency fund.

You're ready to begin your investing journey if you have emergency savings in place.

Q: When should you change from savings to investments?

Ans:

It's essential to have some cash on hand in case of a rainy day. How much money, on the other hand, can one keep in the bank or cash without earning any interest? When money is plentiful, one should begin channelling funds to invest and earn a return to achieve future financial goals.

Investing is a very personal experience for each person. Each person has their own set of life goals and aspirations to achieve. As a result, every one of them has a varied schedule for saving and investing. No investment handbook specifies the appropriate age or timing to begin investing. However, one can ask themselves a few questions to determine whether or not they are ready to begin investing.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.