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Saving and investing are very important in life but they are not the same thing. While both you can achieve very easily, you need to know the key differences. This will help answer the questions; When is it best to save; when is it best to invest?
Saving money is the process of putting money aside for future use rather than spending it immediately. This money can be used for unexpected emergencies or to purchase items which might be so expensive to buy with your monthly income such as a new camera. You can save through accumulating it in a cash holding, depositing it in a current bank account.
Investing money is the process of using money to purchase an asset that you assess and come to a conclusion that it has a probability of generating safe and acceptable rate of return in the future. An example is investing in stocks, bonds, real estate, jewelry.
They both share the same characteristics: we engage in them to secure our lives. If you are doing neither, it is the utmost time to get started. This might require you to change your lifestyle, how you spend and the utilization of your income.
A general rule is that saving should be short term while investing should be long term.
Here are the key differences between saving and investment.
- Purpose and Time frame
Savings are used to achieve short term goals or urgent requirements while investments are made to provide returns and help in capital formation. Generally, Savings focus on short term goals while investments focus on long term goals
Saving have less or no risk while investments might have potentially higher risks.
Liquidity in savings is very high as you can access the money within a short period while liquidity on investment is low.
Saving have less or no returns while investments have comparatively high returns.