Most people find it hard to make critical financial decisions. They become confused, particularly when it comes to deciding on savings or investment. While both methods are crucial to achieving a prosperous economic future, it’s essential to know the differences between them.
In this article, we will explain the key differences between savings and investment for your consideration.
Saving vs Investment Defined
The act of keeping money aside for a future financial need or expense is what is regarded as saving. If you choose to save money, you want the cash available for some other time to use in the future. Saving can be used for long-term goals as well. Saving is usually done by depositing money in a bank account.
The only way investing is similar to saving is that you’re putting away money for future use as well. Only that with investing, you’re looking at achieving a higher return in exchange for taking a risk. The best investments in Nigeria include stocks, bonds, and mutual funds, and exchange-traded funds. You can refer to this post to learn more about mutual funds in Nigeria.
Difference between Saving and Investment
The term savings and investments are often used interchangeably, and sometimes people mix them up. Saving and investing both involve putting away money for future use. There are, however, some unique differences between them.
Features of Investment
- Investing involves taking the risk of loss of funds.
- Potential for long-term gains
- The purpose of investing is to earn interest.
- Investments are for long-term goals. Savings are for short term goals.
Features of Saving
- Savings has minimal risk of losing funds.
- The objective of saving is to keep the money safe.
- Savings generate low interests compared to investments.
Should you Save or Invest?
Sometimes you may need to decide on what to do with your money. Neither saving nor investing is better than the other, choosing depends on your present financial position.
If you need funds for a short-term, deciding to save will take care of that need. While if you have spare funds and can withstand a loss, investing is the best option.
Take note that you should never invest emergency funds. You should keep them as savings. When you invest, depending on the kind of investments, they might yield returns intermittently. You can save your earnings from the investments. This is because emergency funds are meant to meet short term obligations. It will also yield returns based on the objectives of saving for a short period.
Conclusion
Most times, saving is important when you have short-term objectives such as vacations, buying a car, or getting that dream home.
Investments, just like a fixed deposit, is often seen as a long term objective, such as securing a better future for your five-year-old child. With investments, you are looking at gaining some high return on investments regardless of the general economic conditions of the country.
If you’re confused about what decision to make, all you have to do is to make sure the choice you make aligns with your objectives. Then you would be on the right track.
Lastly, because either savings or investment is beneficial for you, get an accountability partner, or apps like Cowrywise and PiggyVest to help you stay on your financial track.