Understanding the difference between saving and investing
You know the saying ‘money can’t buy you happiness’. That is true, but we also know that money can make life a lot easier. That is why many of us are running on the treadmill of life, trying to access more.
When we think about financial security, or having good financial health, two words certainly come to mind — saving and investing. To have good financial health, you need to develop the habit of putting money away, as well as have knowledge of how your money can grow. In today’s blog we will unpack these two concepts that are quite critical to achieving good financial health.
Saving is the discipline of setting money aside for a specific goal, it is short-term and typically for a period of under three years. For instance, you could save and set up an emergency fund, save for a deposit for a car, or a tech gadget like a phone! etc.
This money is typically kept in a savings account and is often accessible whenever you want. Most savings platforms don’t involve any risk. You get exactly what you put in. However, there are options like Koa that allow you to grow your savings by offering you an interest rate on your savings.
Developing a savings habit is crucial because it allows you to have greater security in your life, you can set aside money for emergencies, what we like to call a ‘rainy day fund’, and also save for discretionary spending which allows you to try new things and participate in activities that fulfill you! Saving allows you to have more control over your finances. Saving doesn’t have to be a daunting task, you can always start small and build discipline, the most important thing is to start now.
Now that we have a basic understanding of savings, what then is an investment? This is taking a step further with your money and stepping into more risky ground that also gives you a chance to earn more than you put in. Investment is long-term; it involves committing your money into an asset and growing its value in a more significant way over a more extended period.
Simply put, investing is growing your money. It involves buying assets such as stocks, bonds, mutual funds, real estate, etc., with the hope that this investment will yield more money for you.
Investing can be risky, based on the type of investment you make. There is always a chance that you may end up losing money and the general rule is that you should not invest money you cannot afford to lose. However, on the flip side, you can also earn way more than you put in.
Building wealth via investments requires tough skin, boldness, and a risk tolerance, saving also requires discipline, however, both of these habits are a stepping stone to achieving financial success and securing your financial life, now and in the future.