What’s the difference between saving and investing? Must I do both or will just one do? You put aside money every month, that part is the same. The habit of putting aside is the same. But, savings, at some point in time are spent for a purpose. Investments are not.
The point of an investment is that it makes you money. Savings puts your money towards something. It stops you from frivolously spending money. See the difference?
Now, if you received any financial education as a child, it was probably about savings. How you must save a little of your money every time you earn some. It’s a great lesson, but it is only half the lesson. If you are interested in wealth creation – that comes from investing, not saving. You cannot become wealthy by saving (you can prevent yourself from becoming poor though). You can become wealthy by investing. Taking a little risk. Risk is what allows for growth. Savings, keeping what you have, allows for things to stay the same.
This is apparent by the nature of a savings account – they offer interest, just enough to keep you interested. But really that interest you earn is pretty much canceled out year on year by inflation. So all that happens is the value of your money remains the same – even though it has increased with time.
Hmm, now what? Don’t fret – the habit of saving is so important – it is an excellent money management tool. Some people have lots of savings accounts – one for emergencies, one for travel, one for tax – but all those have a purpose of being spent.
When you want a new car – SAVE for it. When you want a 40th birthday party – SAVE for it. When you want to build wealth, learn about investing. There are many ways to invest, the markets are just one. You need to find what interests you. It is the next obvious step in your financial progression.
