The world of personal finance can be confusing. It also doesn’t help that there are infrequently agreed-upon definitions for common terms. For example, what is the difference between saving vs. investing?
Actually, quite a lot! It’s not just money in vs. money out. It’s about earnings growth and potential retirement revenue.
To help you make sound decisions in regard to money management, we’re going to break down everything you need to know about saving vs. investing. Continue reading to learn more.
What is saving?
Saving money means setting aside funds for future use, whether for emergencies, expenses, retirement, or more. Most of the time, a savings account can earn dividends, but mainly it should be considered a holding place for your funds.
There are many tools that help you build up your savings, such as Achieva’s Saving for GOOD program. It’s an automatic savings plan and works by rounding up each purchase to the nearest dollar and transferring the difference from your checking into your savings account.
Regardless of how you choose to save, you’ll make the most progress if you stay consistent. As the saying goes, every little bit helps!
Why should you save money?
You might be wondering why you should save money. After all, isn’t it better to spend your hard-earned cash as you see fit?
The answer is yes and no. While it’s true that a new pair of shoes or a new iPhone can make you feel good, they won’t provide any lasting value in the long term. The best thing about saving money is that it allows us to achieve our goals and dreams faster than if we had spent all our cash on instant gratification.
Not convinced? Here are a few more examples of how saving can help:
Emergency fund:
You never know when an emergency will occur. Setting money aside as preparation will keep you from using a credit card unplanned or taking a high-interest loan.
Sinking fund:
A sinking fund is for anticipated expenses, usually within a year. You would put a planned amount of money into an account and only use them once you reach your goal. Examples include appliance upgrades, home renovations, or tuition payments.
Retirement fund:
A retirement fund can prepare you for when you no longer work. It is money set aside to use for the remainder of your lifespan. Most retirement funds have tax benefits, all of which are helpful to your budget.
What is investing?
Investing is putting your money into something with the goal of intentionally making more money. There are long-term and short-term investments, with the quicker turnarounds usually exuding the most risk.
Investing is about making money, not spending it or giving it to charity. Additionally, the reality of most investments doesn’t provide enough in return to never work again. Instead, they provide opportunities to get ahead and use the money earned for other things.
How to tell the difference between saving vs. investing
The difference between saving vs. investing is the amount of movement with your funds. Saving is for money to stay. Investing is for money to go. Although it’s true that investment funds intend to return with growth, there is still a period of time when they are no longer part of your account. Lastly, there’s no guarantee that the investments will return at all.
Saving and investing also have different levels of risk. Before making any investments, you should consult with a certified financial counselor.
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