People believe that savings and investment mean the same thing. Well, that's not true. There are various different aspects that make investment and savings different. Both of them are financial tools and eventually help us save money for the future. To an extent, both the tools are dependent on each other. We have simplified for you the different aspects related to investments as well as savings-
What are savings and investment?
As the name suggests, savings is how much you save, taking into consideration your expenses. The sum that is saved from your current budget in order to be useful for future purposes is known as savings. Anyone who owns some amount can save, whether a student or professional. You need to set a budget by considering your monthly income plans and expenses to successfully make some savings. You need to prioritise the expenses and figure out what can be managed or adjusted or is an extra expense. You have to have your income more than your expenditures, then only you will be able to save for sure.
On the other hand, an investment is made when you buy an asset that can generate some profit in the future. Investments are risky in nature. In addition to risks, investments also depend upon the factors such as liquidity, returns, tax, and tenure. The sooner you start investing, the more returns it will generate because of the compounding effect. The investment can be made for a short, medium, or long period of time. There are higher or lower risk investments available in the market. Higher risk investment includes stocks, currency trading, cryptocurrency, Bitcoin, Initial Public Offerings or IPOs, etc. Lower risk investment includes fixed deposits, annuities, money market funds, treasury bills, savings bonds, public provident funds, etc.
Which is more important: investment or savings?
Investments can be made only after your savings plan becomes successful. You need to have a huge amount of money in order to buy an asset or make an investment. If you have savings and you are not investing it the right way, the value of your savings is just decreasing due to inflation. Your savings will not generate any profit or return if you do not invest it at the right time. Thus, investment at the right time plays an important part in savings. However, you cannot save until you have money. So, both tools are interdependent and cannot exist without each other.
Conclusion
You need to understand what your surplus is before making an investment. Do not ignore the expenses or try to adjust them anyhow. Your income and expenses will keep changing over the period of time and it will define your savings and thus investment. One important thing to keep in mind is to set realistic expectations and be patient before making any investment since they take time to generate profits. If you feel confused, reach out for professional help or get in touch with an expert financial advisor.
