There are differences between savings and investments, as well as similarities. Although one would expect that the discrepancies between both of them outweigh their relationships. A shared trait between saving and investing is the importance they play in our lives. We shall spend the subsequent paragraphs examining some of the inter-relatedness between savings and investments.
What are the similarities between savings and investment?
Here are some of the most common features between these two financial terms:
1. Future Benefits
A common feature both savings and investment share is in preparing us for the future. When we analyse the rationale behind embarking on these financial strides, we discover we deliberately put money away for the future. This is probably borne out in a bid to become financially independent or literate. It, however, does not change the notion that we are conscious of the rewards they distinctly bear.
2. Means of Generating Income
This is arguably one of the prime reasons for either investing or saving. As millennials or Gen Zers, we are finicky about our spending parity. When we set out to either save or invest, we invariably take a risk. However, we do so with the intention that it attracts even greater revenue. Perhaps, taking the risk, after all, is worth it.
3. Investing is One Kind of Saving
The journey towards long-term investment begins with first mastering the basics of saving. Experts argue that saving sets the blueprint or pedestal for investment. It goes to say that “an expert at a skill was once a beginner”. It may be possible to prove this theory wrong, from an objective lens anyway, saving does leave a mark on investment.
4. Financial Planning
Planning is an integral aspect of any financial encounter. Failing to plan ideally translates to planning to fail. The processes associated with either saving or investing involve a background analysis of what you want. What do you seek to achieve after embarking on either of them? Are you pursuing short term or long term goals? The resolution from our analysis becomes the output of what we venture into.
5. Income and Expenditure
Here lies another relationship between saving and investment. The income meant for both savings and investment are outside the scope of expenditure. For salary earners who allocate a portion of their income to savings or investments, they do so outside the overall budget for expenditure.
Conclusion
We have examined both the differences and similarities between savings and investment. Although they are used interchangeably, now you know better when to employ the terms. The relationship between saving and investment provides a backdrop into the expectations for each stride. Again, review your financial goals and ascertain what measure fits your idiosyncrasy.
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