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Blog 08 - Image

Saving vs. Investing

Wait, aren’t saving and investing the same thing? 

Not quite, but don’t worry. If you always thought that savings and investments were the same, you aren’t alone. Most people, especially new investors and those just getting started with their financial journey, tend to think of saving and investing as interchangeable. 

However, the two have some significant differences. 

Saving is the equivalent of putting money into a piggy bank. You can take it out whenever you need it for any purchases or emergencies. Just that instead of a piggy bank, you are putting money in a bank.
Investing, on the other hand, means buying assets such as mutual funds that increase in value over time and eventually provide you with more money than you put in.

Let’s get into the detail of it, shall we? 

What is saving?

Saving is the process of putting money aside for a future expense or need by putting it in a bank account. Saved money is liquid, meaning it is available almost immediately for any kind of purchases and emergencies, and is also extremely low-risk.

What is investing?

Investing money is the process of putting money towards buying assets such as mutual funds that increase in value over time and provide high returns in exchange for taking more risk.
Investments are volatile, not to worry – not dangerous like a grenade, but volatile meaning that they could increase or decrease in value depending on external factors.
Investments are not as liquid as money in savings meaning you get your money after selling your assets 

How are savings and investments similar?

Just like peanut butter and jam, savings and investment while different also have some things in common. Peanut butter and jam both have a common goal of making a heavenly sandwich and savings and investment share one common goal too — to help you get closer to financial independence. 

They both have a monetary value that exists within financial instruments such as Fixed Deposits and Mutual Funds.
They also both use specialized accounts with a financial institution like a bank to accumulate money. 

And finally, they both require financial planning. Which means that you will need to spend some time reflecting on your goals so that you can figure out how much to save and how much to invest. 

If you need some help with that, we might have something for you.

Now that you are aware of the similarities, let’s get to the differences.

 

How are savings and investments different?

Just like peanut butter and jam, savings and investment while different also have some things in common. Peanut butter and jam both have a common goal of making a heavenly sandwich and savings and investment share one common goal too — to help you get closer to financial independence. 

They both have a monetary value that exists within financial instruments such as Fixed Deposits and Mutual Funds.
They also both use specialized accounts with a financial institution like a bank to accumulate money. 

And finally, they both require financial planning. Which means that you will need to spend some time reflecting on your goals so that you can figure out how much to save and how much to invest. 

If you need some help with that, we might have something for you.

Now that you are aware of the similarities, let’s get to the differences.

  1. Objective

The objective behind savings and investments is deemed to be the biggest differentiating factor between the two because traditionally, savings have been linked to emergencies and immediate purchases, while investment to long-term goals.

This is because investments required longer commitments and more research and while it is still true that successful investing is about how long you stay invested, there is now more than one avenue that enables people to invest in their immediate goals as well. 

2. Protection against inflation

10 years from now ₹10,000 will not have the same value as it does now because of something called inflation. 

The value of cash in a savings account drops when inflation rises.
Whereas with investments, the value of your money increases over time and enables you to combat inflation.

3. Returns

You yield a fixed or steady amount of interest in savings, which is why they are considered low risk.
Whereas investments have the potential to yield much higher returns, but require you to take a certain amount of risk since they are dependent on market conditions which are subject to fluctuation.

4. Liquidity

Savings and investments can both prove to be liquid or illiquid depending on the financial product that you choose for either. 

Liquidity refers to how quickly and easily you can access and use your money. And as for which financial product is suitable for you, that’s a whole blog in itself!

Tell us if you’d like us to explore and elaborate that for you.

5. Typical products

Savings accounts and Fixed Deposits are typical bank products you think of when you think of savings. And when you think of investments, think of stocks, ETFs, bonds and mutual funds. 

 

Rounding it up

So, which is better?
There is no better!
Both saving and investing are wonderful and equally important habits to build to achieve financial independence, and are best done in tandem with your financial and life goals. 

While saving may seem the easier and less daunting way to go (which it is!), it’s not enough to grow your money. As for the reservations you may have about investing, there’s a solution for that – download Deciml and stat investing small amounts every day, easily and automatically!