What are savings?
Savings is the least debated financial advice anyone would ever give. Despite repeated advice, many do not follow through with saving money. Twenty percent of average Americans keep nothing in retirement savings, and 45 percent of Americans are not prepared for the possibility of outliving their retirement savings.
Saving money requires a certain amount of discipline and sacrifice of privileges. It is an income you do not spend or delay spending. Saving also includes downsizing the outgoing amount such as daily expenditures.
Here are 3 reasons why savings are important:
It might seem difficult for some people to control the urge of spending money on the things that they want, without thinking about the future. Especially, when there are no future goals about how to spend that money. You may not know about it right now, but there might be certain occasions in the future where you would buy something, something worth saving for. There might occur some emergencies or unexpected expenses. That is when you will understand the worth of savings. You will have financial freedom when you require it.
Saving money simply makes your life easier. It keeps you financially ready for future dangers as well as for having a financially stable life. Saving can ensure that you continue to live the lifestyle you are living now. You will not have to live in debt after a financial disaster if you are ready with your savings.
What is an investment?
An investment is an asset or item that is purchased with the hope that it will generate income or appreciate in the near future. To invest means to spend money in the expectation of some returns in the future. The benefit that you get from an investment is called a return. This return depends upon the profit or loss that comes from the sale of a property or an investment. The returns often are in the form of currency gain or loss because of the constantly changing foreign currency exchange rates. High returns are always expected from risky investments.
Here are the reasons why you should invest:
Keeping your money hidden in the house has done nothing good to anyone. There are always these chances of burglary or a house catching on fire. Hence, it is sensible that you keep the money rotating in the market. This will make up for the scarcity of money in the market. This will help to keep the cost of goods constant hence, by investing money, you are keeping the inflation constant.
Meeting financial goals
We all have goals for ourselves and our family. The goal for the children to get their higher education, or built a retirement plan. Keeping your money in the bank will do no good. Instead, to build a better financial future, you need to study the market and make good investments. Your bank cannot do that for you. You need to take the necessary steps to meet your financial goals.
Investment v/s Savings
Saving is considered something in which you put your money in some box and not use it unless extremely necessary. Whereas investment means your money works for you, grows for you, and helps you earn benefits.
Saving can give you fewer returns, around 3-4 percent. Fixed deposits have a rate of interest of around 7-9 percent. Considering that, investing in mutual funds, gives good returns. With the rate of 10-15 percent, savings may not seem a perfect option now.
Savings sustain for a particular amount of time. Whereas investments are done to make for bigger financial goals that require long-term capital acknowledgment. Therefore, for the plans that are due about five or more years ahead from now, investments will help you to gather enough financial backup for the time it is required.
Here the tables turn a little. savings are more reliable and supposed to have less risk. if you put your money in a savings account or fixed deposits or any other account, they are considered the safest investments. Whereas the market fluctuations make investing in mutual funds or stock markets or real estate risky.
Different things work for different people. Some people might save an extra amount while others will invest it for the future. Hence, the choice between savings and investment is highly subjective.