Saving & Investing are important strategies to manage your finances and grow wealth. Both are required to maintain a comfortable financial future and achieve your short-term & long-term financial goals. One needs to understand the difference between saving & investing and find the right balance which depends on your current financial position, short-term & long-term goals.
Saving is the excess of your income after meeting out your expenses. The amount lies in savings account with a bank or as extra cash in hand. The money in your bank account is very safe with no risk and earns a small rate of interest around 3-4%. This also provides high liquidity. Since the returns are low, generally this doesn’t take care of inflation and will lose purchasing power over a period of time. Saving is ideal for your short-term goals like meeting out regular expenses or keep money for some emergency situation. Saving is low-risk option but it gives low returns over the long run.
This money can be invested for meeting long term goals. Various instruments are available like fixed deposits, stock market, bonds, gold, real-estate, ETFs, mutual funds etc. While some investments may rise or fall in value over time, goal-based investments would earn a lot more than the savings. Savings rarely beat the inflation rate; investments can. If you don’t need money for a long period of time and can take the risk, investing will yield higher returns.
When we save, we keep aside money – sitting idle; when we invest, we put that money to work.