Every Financial Planner worth his salt will start with the focus on
YOUR INCOME MINUS SAVINGS SHOULD BE YOUR SPENDING.
The Intent is clear that you should focus on SAVINGS first if you have to achieve your Financial Goals.
And, all the readers of CHALO NIVESHAK, am sure, are already disciplined enough to do this (otherwise, you would not be coming to this website in the 1st place!!)
But, we at CHALO NIVESHAK want all readers to not just be rich…. we want you all to be SUPER RICH. For that…you need to understand that SAVING IS NOT INVESTING
Savings is not same as Investing?
Absolutely Not !
INVESTMENT is to make your money GROW and SAVING is keeping your money SAFE
Saving money is retaining your money whereas Investing is making your saved money work for you and making it GROW.
You may say “But Saving makes my money grow”.
Yes, grow it does but not in real sense.
Let me give an example
The Inflation is around 7% and if your Bank FD gives you 6.5% interest…..now even though your money has grown by 6.5% to say from Rs.100 to 106.5 the actual inflation has taken the value of money to Rs.107 (inflation is 7%) so your money is not actually growing.
So…you need to INVEST to ensure that you stay ahead of Inflation.
Also you need to note that you just done to stay ahead of Inflation but also TAXES too.Taxes too eat away your earning, your money’s growth.
So, it is imperative that you INVEST in an asset which grows more than Inflation AFTER considering the Taxes.
So, In essence, Saving is something which is mostly money set aside for Emergencies, Short Term Goals and where the priority is SAFETY.
Investing is BUYING an asset like Property, Bonds, Equity Shares, Mutual Funds with the intention of making your money work for you and making it GROW.
Investing is usually done to achieve LONG TERM GOALS like child Marriage, Children’s Education, Own Home, Retirement, etc
Saving is more oriented towards Safety whereas Investing is more oriented towards Wealth Building.
in the next article, lets us look at the various options of assets which make sense for you to invest so that it GROWS.
Analysis between Savings and Investing
There is a small line of difference between savings and investment, to understand the same some detailed analysis is given below:
- First, we have a “money surplus” situation on monthly basis i.e. Earning more than spend.
- Then we start to have some accumulate surplus monthly or yearly till we feel secure that we have some buffer should we have an urgent need for money.
- Third as our situation improves further, we start to desire things we need to buy – maybe a bike, clothes, car or a house.
- Fourth, we start to desire (want) certain items – maybe a fancy music system, a nice vacation etc.
- Fifth, if after most of our needs and wants are fulfilled, we start looking at options to put the money left over, into areas with the intention of generating more money for us in future.
Saving is something one does from stage 1 till 4. Investing occurs only from 5th stage onwards.
Key Differences between savings and investing
- Savings means to set aside a part of your income for future use. Investment is defined as the act of putting funds into productive uses.
- People save money, to fulfill their unexpected expenses or urgent money requirements. On the other hand, investments are made to generate returns over the period that can help in capital formation.
- Savings do not have any risk of losing money, whereas In Investing there is a risk of losing money.
- Savings have nominal returns, whereas Investments have high returns if invested wisely.
- You can have access to your savings, anytime because they are highly liquid, but in the case of investment, you cannot have easy access to money because the process of selling the investments takes some time.
Savings Vs Investment Head to Head Differences
Let’s look at the head to head differences between Investment and Savings –
Investment vs Savings – Conclusion
Savings, alone cannot constitute the increase in wealth, because it can only accumulate funds. There must be the mobilization of savings, i.e. to put the savings into productive uses. There are a number of ways of channelizing savings; one of them is an investment, where you can find unlimited options to invest your earnings. Although risk and returns are always associated with it, when there is no risk, there is no return.
The stepping stone of wealth formation is savings, which is decided by a person’s level of income. The higher the income of a person, the higher is his capacity to save, because the rise in income increases the propensity to save and decreases the propensity to consume. It can also be said that it is not a person’s ability to save that encourages him to save money, but the willingness to save forces him to do so.
In other words, investing is just one kind of saving. Whenever you put something aside, regardless of your hopes for the future, you’re saving. When you put something aside with the hopes that it will somehow provide a bonus to you after you set it aside, you’re investing.
CEO, Srikavi Wealth