Difference between Savings & Investing

 

• Most of us think Savings & Investing are the same thing. While the terms are often used interchangeably by many, but they are different.

 1. The difference between your monthly income       & your expenses is what constitutes as your           "Savings".

 2. When you multiply the money, you save by putting it in various investment classes such as Stocks ,Bonds, Mutual Funds, Gold, PPF, NPS or Real Estate, you are creating wealth by " Investing".

A] Benefits of Savings:

     1. Savings help you to meet short term goals such as going on a vacation or buying a gadget.

     2. Savings can be in the form of cash or in a bank account with very little or no risk involved having nominal rate of return.

     3. With Savings, you can meet your emergency needs by creating an emergency fund which helps you  at the time of an emergency.

B] Benefits of Investment:

    1. Savings invested in various assets categories earn you a substantial profit.

    2. Investing money helps you meet long term goals like buying a house.

    3.When you invest, there are some risks involved like fluctuating interest rates or other economic conditions that can lead to losses.

    4.  Investing money has the potential for profits that increase your net worth & help to buy wealth over time.

C] Advantages of Investment:

    1. Money kept in a safety vault though safe, but it does not guarantee you adequate returns to beat  inflation.

    2. Money invested in products like Stocks, MF etc. is subject to risk but has the potential to grow                over time.

    3. The aim of any investment is to beat inflation because with inflation the value of money decreases over time.

Hence, when you invest your aim should be to earn a return that is greater than the rate of inflation.

- CA Neha Vora