Investing vs. Saving – Which One Should You Choose

Often you hear people talking about their plans to save and invest. More times than not, people generally use the two terms interchangeably without realizing the difference between the two of them and are not aware of the benefits of investments over savings. Accumulating one’s wealth may seem like an investment, however, that is not what it is. Savings are indeed necessary for one to invest but the two activities are essentially not the same.

Before one starts to actively initiate their efforts to save or invest it is important to understand what each term means.

Difference Between Investment and Saving

In the most basic definition, saving is the part of your income that has not been spent on any personal needs or expenses. The money that is left behind out of your income intentionally or unintentionally is your saving. On the other hand, investment is the money out of your savings that is used to earn a Return on Investment (ROI) through employing the savings in financial products such as land, gold, mutual funds, etc.

The money earned through investments is based upon the profit that one may gain as a form of interest on the money invested in funds or tangible goods. The profit and ROI earned from investments have the potential to be greater than what one can accumulate through just simply saving of their income. When one invests, the aim is to get returns much higher than a simple savings account.

Benefits of Investments Over Savings

Many people tend to keep a safe distance from investment opportunities due to the greater level of risks associated with it in comparison to simply saving their income. The uncertainty of the investment environment and market risks are always present and should be vetted and minimized as much as possible through research and consulting with professionals. As there are risks in investment, rewards are also incidental to the risks taken.

Keeping your money in a savings bank may keep your money secure but you cannot earn high returns – high risks tend to yield high returns. As an investor, you need to learn about the options you are considering and guide your decisions based on your financial goals.

Conclusion

Saving sets off your journey towards money management and is necessary for you to broaden your horizons and build your wealth. However, saving alone is not sufficient. For one to expand their wealth and achieve bigger financial goals they must explore investment options that best suit their needs and that is the biggest benefit of investment over saving.

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