Hello Readers!
Saving and Investing, simply financial activities, of putting away money for a future financial requirement. However, they differ on several grounds that we will explore further.
More often than not we assume saving and investing are the same financial activity. While in reality, they are different from each other. Let us understand it through a small example of two friends Mona and Monica.
Mona only spends a small part of her earnings. She makes it a point to put away some money as security before spending. This is saving.
Monica, her friend, goes one step further. She puts a fixed amount of her savings every month in Mutual Funds. This is investing.
Saving Can Be Defined As……
- Saving is the difference between what you earn and what you spend, that is kept aside for future use (simply accumulating money).
- Savings help provide for future emergencies or any specific short-term goals like providing for medical or other emergencies.
- The aim of saving money is to keep it extremely safe and liquid (can be accessed in a short period of time).
- Savings can be in the form of cash in hand (this is not advisable as not only is it risky to hold large amounts of cash, but also the fact that cash earns you no returns). Savings can also be money deposited in your savings bank account. Savings earn a very nominal interest in a bank account but the money is typically safe and faces little or no risk.
Investing Can Be Defined As……
- Investing is putting your savings into financial products so that your savings grow and create wealth over time
- Investing is the process of wealth creation to meet future financial goals.
- When you invest money, you put it in instruments such as stocks, bonds, gold, real estate, mutual funds, etc.
- Investing money allows you to earn returns but also poses risks depending on the duration for which you are invested and the inherent risks of products themselves.
When To Save And When To Invest?
If there is anything that these uncertain times have taught us, it is that saving money is very important. By saving regularly, you must aim to do the following -
Invest a part of your savings to create an emergency fund, equal to at least 6 months of your household expenses, that would help you cater basic living expenses in case of an emergency like job loss or during pandemics. This money should be kept in a highly liquid/ accessible investment product such as Liquid Mutual Fund.
Invest another part of savings in debt mutual funds for your short-term money term money requirements, say any medical emergencies or any other short-term financial requirement.
Use your savings to ensure you and your family with adequate protection in the form of life and health insurance.
Once you have the above-mentioned covered you can focus on investing towards important financial goals – be it building a retirement corpus, an education corpus for a child, or buying a house. Plan and invest in equity mutual funds for the long term for prominent big goals of your life.
Let Us Sum Up!
Understanding them both is important as they help us plan our short-term and long-term goals accordingly. When you save, you know that you are putting aside money for a rainy day.
But when you invest, you are creating wealth that will help you achieve your financial goals. At Basis, we help you understand how to go about doing both. With expert advice, easy-to-digest knowledge boosters, and supportive communities, your financial journey will become a lot easier.
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For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).