Saving vs Investing: Beginners Guide, The similarity & Difference (+ Saving & Investing tools)

Saving vs investing are both important, but they are not the same. Both help you to realize a more comfortable self and economic future. But you need to understand the difference between the two as they serve different purposes. Meanwhile, you should understand also when best to save and when to invest the most. Besides, both saving and investing have similarities and the way they work. Therefore, I’m here to guide you through this article, so you won’t be in any state of sixes and sevens. Keep reading and exploring!

Saving vs Investing

Saving vs Investing. Generally, it is up to you to decide whether saving or investing is a better choice to achieve your financial goals. Nevertheless, to some goals we have as individuals, one is better than the other, either to save or invest. Most times, it’s hard to know when to save and when to invest. It doesn’t really matter how long you’ve been working on your finance or you are about getting started.

If you don’t withdraw your funds, the dollar amount in your bank account won’t go down, that is the safe side of saving. Perhaps saving won’t let your money grow quickly because of the interest rates attached to your savings account. Unfortunately, interest rates in savings generally fall below inflation. This simply means that your savings can lose purchasing power as time goes on.

Read Related: Saving Strategies: Meaning, Best Options For 2021 & Saving vs Investing

On other hand, It is tempting to want higher returns and to invest to overcome inflation. Unfortunately, the value of an investment does not always increase. In some cases, the investment may be completely useless.

So how do you know when to pay attention more to savings or take some risks to invest and make more money? Keep reading!

Saving vs Investing Money

Let’s dig further in explaining more about saving and investing money. These are usually two different words people get confused at. Most people think that they are two different words with the same meaning, but the difference is much clear based on the level of risk involved.

Saving money and investing money are entirely different. Based on your financial strategy both have different purposes and roles. It is important to ensure that you fully understand this basic concept before you start accumulating wealth and seeking economic independence.

Even if your portfolio is good, you risk losing everything if you don’t understand the role of cash in your portfolio. Let’s learn how to find the right balance between saving and investing below.

Read Also: Investment: Definition, Types, Best Guide for OPtimal Result(+ how it work)

Saving Money – The Definition & Explanation

Saving money is the process of keeping cash separately and storing it in a very secure security or account. Meanwhile, money is also mobile. This means that cash can be accessed in a short period of time, usually a few days at most.

Most importantly, when you need cash, saving makes it available on time. No matter what happens around you, your cash is instantly available with minimal delay. In fact, many famous high net worth investors advocate hiding a lot of money in a hidden place, even if it involved serious loss. Perhaps, saving can serve long-term goals as well. Especially when you want to be sure you have the cash within the time you need it in the future.

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Investing Money – The Definition & Explanation

Investing money is the process of using your funds or capital to buy an asset. This asset can lead you to safe and acceptable rates of return over time. However, the purpose of the investment is to enrich you, even if it means that you may experience volatility over the years.

Moreover, the actual investment is usually supported by a certain safety margin in the form of assets or owners’ income. The best investments are often “productive assets” such as stocks, bonds, and real estate.

Imagine This: If you deposit $2,000 in your savings account with a 3% annual return, it will increase to $3,612 (excluding tax) after 20 years. Investing the same $2,000 in a stock trust will give you an average annual return of 10% and will increase to $13,455 (excluding taxes) within 20 years.

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Saving vs Investing – The Similarity

  • Both involved putting out money for the future
  • They’re both strategies that help you accumulate money
  • Saving and investing uses specialized accounts with a financial institution to accumulate money
  • Savers and investors both also understand the importance of preserving money, either by saving or investing

Saving vs Investing – The difference

  • They have different type of assets in each of their accounts
  • Saving involved bank products such as savings accounts, money markets, and CDs or certificates of deposit
  • While investing deals with stocks, ETFs, bonds, and mutual funds.
  • Saving virtually involve no risk, on other hand, investing involve the risk of losing your investment
  • Lower return is associated with saving while investing can yield a higher return
Read Also: Investment Plan: All you need to know Explained in Detailed(+ free tips)

When is The Right Time to Save vs Invest?

It is difficult to know when to save or invest. Everyone’s situation is unique. You have to make a decision based on your own circumstances. Basically, you need to save on important one-off goals, such as buying a home or buying a car for cash. These goals must be achieved with one of the strategies listed in “How to save money” or “Saving strategies“, our related articles. Meanwhile, a balance between these goals and retirement investing allows you to achieve both goals in one comfortable program.

However, based on the flexibility and targeting time, you need to decide whether to save money or invest to achieve your goals. If you need to achieve your goals by a certain date, it is better to save money than to invest. If you have more flexibility in deciding when to achieve your goals, you may want to consider investing. You can earn higher money in return, but this can be too late to reach your goals during the market bad year.

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Basic Tip: If you’re not sure what to do if to save or invest. The best advice is for you to consult with a trusted financial advisor who can help you make a decision. Meanwhile, if you have a short-term goal it’s best to save, but choose to invest for your long-term goals. However, you can choose to do both, that will be the wisest choice.

Saving Tools

Below are different types of saving tools and their definition.

#1. Savings Account

A savings account is a type of bank account that allows you to keep your money aside and earn interest in the process. Some savings accounts have lower interest rates, while others have higher interest rates, which can actually help increase your funds. Generally, online savings accounts offered by Discover and CIT Bank offer higher interest rates than physical store banks.

#2. Money Market Accounts

A money market account is like a savings account that earns interest. However, you can also make checks through this type of account. Unfortunately, money market accounts sometimes have higher minimum balance requirements. Meanwhile, the bank may also limit the number of times you can withdraw money from these accounts before paying the fees.

Perhaps, you have to note that money market accounts usually offer higher interest rates than savings accounts. But this is not always the case, it changes sometimes. Notwithstanding, consider both Discover and CIT Bank as they offer money market accounts that you can consider.

#3. Savings Bonds

Savings bonds are issued by the government. Basically, you have to buy a savings bond and wait for some time to earn interest. However, interest rates on savings bonds are not always high. In fact, in some cases, you can deposit money into your online savings account and make more money. If you have a savings bond for 20 years, it generally works best, redeeming them early attracts interest payment.

#4. Certificates of Deposit

With a certificate of deposit (CDs), you can raise funds to a higher interest rate. Usually, you promise not to withdraw funds during the CD’s duration, in exchange for raising the interest rate of funds to the bank. Meanwhile, you can take it back early according to the condition of the CD, normally, you must pay interest. However, some CDs provide drawers without penalty but usually offer lower interest rates.

Consider Reading This: Money Management: Definition, Importance & Simplified Guideline(+ tips & pdf)

Investing Tools

Consider the following investing tools below for optimal investment knowledge.

#1. Investing Apps

Investment apps (eg Stash and Acorns) make it easy to start investing from your mobile phone. Each application has its own selling point. For example, Stash’s goal is to able you to start investing with just one cent and make it easier to invest. However, Stash has three fixed-price monthly fees, including a beginner plan of $1 a month basic brokerage account. It also has free finances, explanations, retirement, and investment in banking options.

Basically, there are options like monthly growth Plan 2 and Stash + Plan, which includes two admin accounts and costs $9 a month. Meanwhile, terms and conditions apply.

#2. Brokerage accounts

Existing securities accounts (for example, securities accounts provided by Ally Invest and Fidelity) are important accounts that can be used to purchase investments. They usually provide the greatest flexibility for your investment. Brokerage companies have their own functions and fee schedules, so try to find the brokerage account that best suits your situation.

#3. Robo-Advisors

Robo-advisors (eg Betterment, Personal Capital, and Wealthfront) allow you to invest with the help of automated advisors.

The software doesn’t deal with a person, instead, it helps in building a portfolio based on risk tolerance, goals, and other related factors. Perhaps, fees for these services are generally low as there are no transactions with traditional consultants. But it’s still more expensive than doing it yourself.

Read Related: How to Make Money Through Investing: In Stocks, Best Options for 2021

Conclusion

Making a choice between either saving or investing will depend on your goals for the money and your risk tolerance. Now you have to know the similarity and differences, it’s all up to you to make your best choice. Consider your goal and the duration, then choose if to save for it or to invest in it. However, there is a choice of even doing both, as they both help you to accumulate money. Amazing! If you find this article helpful, do the favor to like and share using any social platform below.

Chiemerie Ozurumba (Adorablepen) is a freelance writer, with a Degree in Computer Science & Programming. He is also a personal finance expert, blogger, public speaker, and poet. He has written so many amazing & creative scripts, articles, quotes, long & short stories, and poems to his credit. He is also a relationship, love & life coach.

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