In personal finance Savings & Investing are often used by individuals interchangeably. There is a common misconception among people that saving and investing the money are the same thing and if you are one of those who believes this then you cannot be any further from the truth. There is a fine line of difference between the two which we will uncover today.
First before understanding the difference between the two let’s try to understand what is savings and investing via an example. For instance there are two very good friends Mr Rahul & Mr Rohan both of them who are in the prime of their career and are earning Rs 50 lakhs each per annum. Rahul and Rohan both set aside 10 % of their salary every year i.e. Rs 5 Lakhs, Rahul keeps the money untouched in his savings account which earns him 3-4% pa , however Rohan doesn’t let the money stay ideal in his savings account, he allocates his savings to various asset classes like gold, real estate, equity, debt and etc which earn him a return of 10% pa. Rohan and Rahul both are saver however both of them are not investors. Rahul is a saver and Rohan is an investor.
All INVESTORS are SAVERS however all SAVERS are not INVESTORS. Now that you have understood the difference between the two. Let us dive deeper and understand the key differences between the two.
INVESTING V/S SAVING
| INVESTING | SAVING |
| Investing is the act of saving your money and allocating it to various asset classes in order to earn a healthy return | Saving involves setting aside a certain % of your earning and holding it in cash or savings account. |
| Money works harder to generate more money | The individual works harder to generate more money |
| Investing requires time and effort on behalf of the individual as it contains various aspects like asset allocation, rebalancing and etc. | Savings requires little to no effort on behalf of the individual as the money stays ideal in the savings account. |
| Investing helps to increase the purchasing power of the consumer i.e. If investments are done properly then it helps to generate a return which comfortably beats Inflation. | Savings decrease the purchasing power of money i.e. The savings account offers only around 4% whereas inflation averages around 5-6%. This means that you are actually losing money. |
| Investing acts as a catalyst for an individual to achieve financial freedom | One can never become financially free if the money is only saved and not invested. |
| Investing is goal based i.e. If your goals are retirement or marriage of child then one will calculate the amount required and will set up an investment plan regarding the same. | Savings on the other hand is not goal based. |
| Investing in various products having different lock-in periods may provide one with liquidity problems | Savings can be liquidated anytime and thus can be used to build an emergency corpus. |
| Investing in different asset classes has different risk associated with them. | Savings has low risk associated with them due to capital protection and liquidity. |
In any investment you expect to have fun and make money.
-Michael Jordan
WHERE CAN ONE INVEST?
Now after understanding the importance of investing the obvious question in your mind will be: What are the investment avenues? The below listed are a few investment avenues-
- Debt
- Public Provident Find (PPF)
- National Saving Certificate (NSC)
- Kisan Vikas Patra
- Senior Citizen Saving Scheme
- Debt mutual funds
2.Equity
- Direct Equity
- Equity Mutual funds
- Gold
- Physical form like Jewellery, gold coins and etc
- Gold mutual funds
- Sovereign Gold Bonds
- Real Estate-
- Holding real estate(properties)
- REIT (Real Estate Investment Trusts)
CONCLUSION
Today onwards you decide to be an investor in the economy and not just a consumer. All wealthy people have made money work for them via investments. If you were just a saver, what are you waiting for? Get started with your investment plan. We at Mitra money can help you make the right investments, If you require any further help feel free to contact us.