The financial world can be a confusing place. Save for this. Invest in that. But all you’re left doing is worrying that you’re doing nothing.
At MBC we believe in simplicity and the value of understanding the difference between saving and investing.
No doubt, understanding the difference and using it to take action, can go a long way. This will help ease long term financial stress.
So here is the difference between the two, to hopefully inspire you to make the best financial decision for you.
Saving is the long or short term process of putting money away to save for a goal.
No doubt, we all have that goal, or many: Saving for our child’s education, a house, or even a holiday. Or, importantly, saving for that time when your car does that thing where it doesn’t start. Isn’t that just annoying?
Savings are generally easily accessible and are low risk. What you put in is what you get out and building a healthy savings over time will act as a reliable cushion in a financial fall.
Never invest more than you can afford and never invest when you feel you don’t have the capacity to do so over the long term. There are often steep penalties when ending investments early that can end up losing you money instead.
But how does that differ to an investment?
Investing is the long term process of taking money and putting into an entity, perhaps a company or a commodity, in the hope that the money you put in will grow over time. Importantly, accessing invested money is not very easy and is not recommended.
You invest to build your financial wealth over time and what you get out is hopefully more than what you put in.
Yes, investments can be risky but the rewards can be great. High risks can sometimes bring about high returns and when it does, your hard work and patience all pays off.
So, should I invest or save?
Well, the question you should ask yourself is what is your goal? Is your goal something tangible: Is it something that you are saving towards like a house or a holiday?
Or, is your goal to let your money work for you and to grow your long term wealth? Depending on your goal, you may find it better to save or to invest – or even better, do both. If you still find yourself confused, chat to a financial advisor to get you on the right track. Without doubt, your future financial self will thank you!