When you know the difference between saving versus investing, you’ll increase your chances of achieving financial freedom.
Understanding the key differences between saving and investing can help you make better financial decisions and is essential for being able to successfully retire when you want.
When it comes to managing our money, we often hear terms like “saving” and “investing.” And although both of these activities involve allocating funds for the future, they serve distinct purposes and each comes with its own set of risks and rewards.
- Some people may not invest due to fear of potential losses and lack of FDIC protection.
- Savings benefit from FDIC insurance, but may lose value due to inflation.
- Investing can help grow money but may seem complex and intimidating for some.
- Prioritizing basic needs and expenses can make saving or investing difficult, especially if debt is involved.
- Debt relief options such as debt settlement or consolidation may be necessary before being able to save and invest.
Financial freedom in today’s world is achieved through the right balance between saving and investing.
Whether it be growing wealth, saving for a specific goal or having peace of mind, understanding the key differences between saving and investing is crucial.
What Does It Mean To Save Money?
Saving money is the act of setting aside a certain amount of our income for future use. It involves keeping a portion of our earnings in a safe and easily accessible place. Ideally, we should have a savings account set up for this purpose.
The most common purpose of saving money is to have funds readily available in case of emergencies or for future expenses. This is known as ‘liquidity’ or the ability to turn savings into cash quickly.
Home repairs, medical bills, or a down payment on a house are just a few examples of unexpected expenses that can be covered through savings.
For example, imagine your car breaks down, and you incur a large repair bill, but you do not have any savings to cover it. In this situation, many people would likely put the repairs on a credit card or take out a loan, leading to high-interest payments and potentially more debt.
Although some short-term payday loans and other forms of debt can be useful for temporary cash flow needs, having liquid savings to put towards emergencies is a much better option.
Without adequate savings, the risk of financial difficulties increases, leading to debt accumulation and the need for solutions like debt relief or debt settlement.
The Purpose of Investing Money
On the other hand, investing money means putting it into assets with the expectation of receiving a financial return.
These can include stocks, bonds, real estate, or starting a business. Although this involves greater financial IQ to maximize returns, it can lead to much larger gains compared to saving.
Investing serves the purpose of nurturing our wealth over time, allowing us to strive towards long-term goals like saving for retirement or establishing generational prosperity. Unlike saving, investing involves a higher level of risk, but it also has the potential for greater returns.
With an investment calculator, people can determine the potential growth of their money over time based on their starting balance, contribution amounts, and expected rate of return.
Inflation erodes wealth. Investing is essential to keep up with the pace of our financial needs.
For example, if the rate of inflation was 3% and your savings account only earned 2%, then you would be losing 1% of your money in real terms when it comes to purchasing power. Investing allows us to potentially earn returns that exceed inflation and grow our wealth over time.
Benefits of Having Both Savings and Investments
When it comes to savings vs. investments, it does not have to be an ‘either/or’ question. Both savings and investments serve different purposes and can complement each other in a well-rounded financial portfolio.
Liquidity is a significant benefit of having a savings account. Savings accounts are easily accessible, making it ideal for emergencies or unexpected expenses. In contrast, most investments require time and effort to convert into cash, such as selling stocks or real estate.
If the market dips and you need immediate access to cash, you may have to sell your investments at a loss. Having savings as a safety net can help prevent this scenario and keep your investments intact.
Moreover, savings accounts are relatively risk-free compared to investing in the stock market or other high-risk options. However, compound interest can significantly grow your investments over time, which is not possible with a savings account.
Passive income from investments can help you build up a new emergency savings fund, allowing you to have more savings without actively setting aside a portion of your income.
When it comes to savings, it can help you afford more costly investments. For example, if you have a significant amount saved up for a down payment, you can afford a more expensive property or fund a business venture.
Common Reasons Why People Don’t Save or Invest
A major reason why some people do not invest is because investments are not covered by Federal Deposit Insurance Corporation (FDIC) insurance, unlike savings accounts.
This means that if your investments fail or lose value, you can potentially lose all of your money. With a guarantee of protection of $250,000 per depositor from the FDIC, savings accounts may seem like the safer option.
Some people may not save due to high inflation rates, which diminish the value of savings over time. This can be discouraging for individuals who are trying to save for a long-term goal and may influence more spending or investing instead.
Another common reason for not saving or investing is a lack of knowledge or understanding of financial concepts. Some individuals may feel intimidated by the complex terminology and processes involved in investing and may not know where to start. This can lead to fear of potential losses or making uninformed decisions.
Finally, living paycheck to paycheck can also be a reason that individuals do not have the means or ability to save or invest. With limited funds, it can be difficult to prioritize saving or investing when basic needs and expenses must be met.
At Americor, we understand the importance of managing your finances wisely.
If high-interest debts are impacting your savings and financial well-being, explore our debt relief solutions, including debt settlement and debt consolidation, to regain control of your financial future.
If your debt has become unmanageable and you have difficulty making your debt payments each month, then you should consider negotiating a debt settlement and an affordable payment plan that suits your budget.
Talk to one of our certified Debt Consultants, for free, who can provide personalized advice tailored to your specific needs.
By taking proactive steps, you can put an end to your financial stress and work towards a brighter financial future. Remember, there is always hope for debt relief, and our team of experienced professionals are ready to guide you on your journey to regaining control of your finances.
For more information about Americor’s debt relief services, contact us today to see how we can help you eliminate your debts, and get on the fast-track to becoming completely debt-free!