Is investing better than saving? – An insightful analysis

Investing and saving, both are really important concepts to build a strong financial foundation. Both these tools are used widely by everybody to achieve certain financial goals in the future.

However, as similar as these concepts may sound, the truth is that both, saving vs investing your money can have different financial outcomes in the future. 

Both saving and investing your money could lead to a more secure future. However, understanding the difference between both is really important to map out your financial position. 

Usually, people stack enough money in their accounts and think they are already invested. While saving your money surely is the first step to start investing, there are a few more things to investing that savings can’t help you achieve.

This is why we have dedicated this blog post to help you understand the difference between saving and investment and figure out whether saving money is better than investing.

The importance of ‘saving’ money

It’s a no-brainer that saving your money is important. 

Saving money is directly proportional to a goal or an objective you may have. Or maybe you just want to store it for the future. Money is just like every other treasure that’s going to have value for eternity.

However, saving money precisely also allows you to:

Tackle emergencies – Uncertainties are common in life. Preparing for them in advance could save you a lot of trouble. In cases of emergencies, money that’s saved with you could be the only cushion you could fall on. This is why saving money is always advisable, despite the age or the type of job you have.

Start investing – Apparently, the backbone of investing is saving. Until there’s no money in your account, you don’t have anything to invest with. Out of your saved money, you can allocate some money to your investment portfolio.

The importance of ‘investing’ money

Investments are an essential tool to add to your wealth. You can invest in mutual funds, stocks, real estate, bonds, and ETFs to unlock new money-making opportunities.

While you are potentially unlocking new opportunities with investing, you should also know that investing is subject to risk. 

This means that your money could grow from what it is right now or you could also lose it after investing it. That’s why investing is such a wealth creation tool that requires adequate research.

Other than that, investing allows you to:

Reach your financial goals faster – Investing sure has risks. But when invested in the right markets, the value of your money could significantly increase. Addition to your capital can help you reach your financial goals faster.

Beat inflation – Money loses its value when it’s stagnant. In fact, every year, your money loses 2% of its value, lying in a bank account. Investing can practically help your money gain value despite the global inflation situation.

The similarities between saving and investing

Whether you save your money or invest it, the goal is always the same – to add to your wealth.

For the sake of adding to your wealth, choosing between savings and investing could have different outcomes. 

For savings, the route is to open a savings account with a bank and accumulate all your wealth there. For investing, the route is to open a trading account or approach a broker.

However, for investing, there’s always a need for a surplus amount in your account for safety and emergency purposes. In fact, one of the most ideal ways is to always at least keep half of your savings with you.

The differences between savings and investing

Contrary to popular belief, investing and saving your money aren’t the same thing. While both of them do have similarities, truth is, both of them provide different results.

The difference between saving and investing begins with the value of money. 

When you think of saving, think of a pool of money that’s there as it is. You can add money to it manually, but in the end, it doesn’t grow on its own.

But when you think of investing, think of a pool of money that grows with the changing trends in the market. Sure you are adding money manually to it, but at the end of the day, it has the ability to grow on its own as well.

 

Savings 

Investing

Account type

Savings account

Demat account

Return

Lower

Higher or lower than the actual value of the money

Risk

None

Depends on the investment type and the strategies

Tools

Savings account, CDs

Stock market, Mutual Funds, IPOs

Difficulty

Lower

Higher in some cases

Protection against inflation

Lower

Potentially higher protection

Time frame

Short

Anywhere from 5 years to beyond

Saving vs investing – Where should I put my money?

Saving as well as investing your money, both are good and bad options in different cases. Choosing either really depends on your current financial position and your goals. 

Here’s how.

Saving your money – If you are saving your money just to use it in the next few years, a high-yield savings account could be really helpful for you. One of the fundamentals of being disciplined with your finances is by saving a rainy day fund that includes three to six months of your expenses set aside.

In the same way, if you are in credit card debt or have any kinds of debts elsewhere, it’s important to clear them first before investing. Paying off your debts without incurring any interest rates would give you more returns than what you can earn on investing.

Investing your money – If all the financial discipline boxes are checked for you and you have set aside a rainy day fund after clearing your debts as well, you can afford to take some risk, and thus you can invest.

Investing is a long-term journey, so you’d want to be prepared for a long haul of 5-10 years before you start generating tangible results on your investments. Investing can also help you save well for your retirement.

Conclusion

Before you invest anything, saving your money is important. 

However, if all you are doing is saving money and not putting it in places where it could generate returns, it loses its value over time.

To achieve your financial goals and accumulate wealth over time, investing is important.

Now, you can start investing with convenience at MoneyIsle and choose the best kinds of markets and securities to invest in over a certain period of time. All you have to do is to sign up.

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