Investment vs. Saving: Which Suits Your Goals.

Investment involves the allocation of your saved funds into assets or items that may increase in value in comparison to their original price within a short period. When you allocate funds in any scheme or plan with the intention of making it increase, it is called investment. Investment can increase income through two methods. One is to invest your money into any land or property which can be sold later for generating income through profits, while in the second option, you need to invest funds in the stock market, mutual funds, unit-linked investment plans, endowment plans, bonds and others. These plans may generate income regularly and you can earn income through the accumulation of profits.

The main objective of all investments stays constant, that is, to increase the value of your invested funds. But you should be careful about some factors at the time of investment, as returns, risk, lock-in duration, investment flexibility, and the ability to withdraw at the time of necessity.

It is necessary to set a goal before starting to invest in any of these investment plans. You should also decide the time limit to accomplish it. As soon as you set the goal, it is important to start investing. This will help in simplifying the process. While investing money, you should be very careful about the presence of risk which makes them profitable.

Saving.

Savings means setting aside funds every month for future use if you find yourself in any type of need. It just refers to that portion of your income which you save after fulfilling your basic requirements. The saved money remains free from any risk of losing, but at the same time, it does not help in generating profits or returns. Most of the people are not able to save as they purchase their required items on loan and they have to pay continuous EMI. In such conditions, the people are not able to save money each month or they may have very small savings.

Savings assist in accumulating resources for the future or for any emergency. Savings can be helpful in fulfilling financial responsibilities as any emergency, going for a trip or any other short-term goals. The saved amount can be used to generate additional income through investments. Also, the funds sitting unused in the savings account of any bank generate interest each year.

Common factors of investment and savings.

Although investing and saving serve different purposes in your financial plan, they are interconnected in many ways:

• Generating Wealth: Both the methods are important for improving financial status. Investment can help you grow your money to achieve bigger financial objectives as retirement planning or a home purchase, whereas saving allows you to put aside funds for emergencies or short-term objectives.
• Objective-Focused: If you want to make your investment or saving effective, you should have clear goals. If you have a clear understanding of your requirements or your objective, it will help you to determine how much money you should invest or save and for how long you have to invest or save money.
• Require Disciplined Method: A disciplined approach is essential for achieving success in both investing and saving. For achieving financial goals, it is necessary to set aside money regularly and then you can fulfil your aims and plans.

Difference Between Investment and Savings.

Although there are some similarities between investment and saving, they also have a few significant differences:

• Difference of products: The different investment products include shares, stocks, bonds, mutual funds, real estate and many more. Investments provide a wider range of options. But the banks provide savings options. The main products provided by banks consist of Savings Accounts, Fixed Deposits, Recurring Deposits, and Tax-Saving Deposits.
• Difference in inflation effect: When you make some investment, you find the true increase in your funds, and you can realize that through investments, you have availed greater returns than inflation which can be called real profit. But the savings accounts typically offer low interest rates, which may not match the rate of inflation. Your money may decrease in purchasing power as time passes because of inflation.
• Difference in risk: There is a significant difference in risks and returns of investment and saving. Investment has a risk of loss of money but at the same time it has the chance of higher returns. If you want to avail the greater profit and high return, you will have to take the risk. The risk level linked to investments depends on the chosen product. While in case of savings, the earnings from savings accounts are reliable and guaranteed. As your principal is typically assured, saving involves minimum risk. The popular saving option provides mainly the safety of funds and assured returns. The saving includes savings accounts and fixed deposits.
• Difference in Liquidity: In case of investment, if you require selling the product before the maturity date or their lock-in period, it may cause some loss to retrieve your funds. While savings accounts offer a high degree of liquidity which makes it easy to access to your funds when needed.
• Difference in Financial Goals: Investment is suitable for long-term goals where you have time to tolerate the market fluctuations which can bring higher returns. If you want to keep the cash for immediate access in case of any emergencies or to fulfil your short-term goals, you should go for saving which can serve your purpose in the best way.

Which is more suited to your goals – Investment or Savings?

You may have different goals which you want to accomplish during your life. Investment and saving both are good and have their different advantages. Some goals can be fulfilled with the help of saving. But some of the financial objectives need a good investment strategy. Suitability of investment or saving depends upon the goal which you want to achieve. If you have long-term goals, you should go for investment. If your goals are short term, you should opt for the saving option. There are some objectives which can be accomplished easily by making investments. These objectives are:

1. Suitable goals for investment: Now in today’s scenario, it is very difficult for you to solely depend on your savings. It is necessary to create a solid financial portfolio to achieve your financial goals which is possible through investment strategies. As you know, there is a direct connection between risk and returns. It means that the greater the risk taken, the higher the possibility of good returns is. So, when you proceed with any investment, it is essential to assess the risk factors of different options and evaluate your risk tolerance. The goals which can be accomplished through investment are:

• Serious medical issues: If you or any of your family members face a serious medical emergency, you need a heavy amount of money which can be possible only by making good investment as investment gives good returns.
• Purchasing a home: You may achieve your objective of purchasing a home by making good financial planning. It is essential to have the ideal investment strategy. A good financial planning can help you in increasing your wealth over the time and then you can use that money to accomplish your goal of purchasing a home.
• Retirement planning: If you want financial stability in your life after retirement, it is necessary to invest for the future. A good investment can make your life peaceful and stress free.

2.  Suitable goals for saving.

Putting aside a part of your earnings on a monthly basis can establish a reserve fund, which can be used to fulfil different types of short-term goals. Savings products specially involve lower risk, ensuring your capital remains protected. The bank refunds the full principal amount.

• Medical help: The saved money can be used to protect you and your family in case of any common medical problem. If you have saved money for emergencies, you can live stress-free.
• Going on trip: If you have any goal, like going on any trip for a few days and you find yourself unable to manage funds. In that case you should save money and enjoy the trip.
• Purchasing any item: You can purchase any item which you think is necessary but because of financial limitations, you could not buy that. You can set a goal to save money for purchasing that item.
• For making investment: Sometimes you are not able to make any investment randomly. So, you should save some money and invest that saved money in any investment plan.
•  Saving money usually aids you in achieving your short-term objectives. You can establish an emergency fund by saving money and then fulfil few of your short-term goals.

Bottom line.

The rate of returns is an essential factor for comparing investments and saving. The first can produce a greater return rate leading to real profits. While the second gives consistent and nominal returns through interest payments. Investments can provide you with returns which can compliment the inflation that may be increasing with high rate. Investment carries various risks, including market volatility, changes, and more. Therefore, you should assess your risk tolerance prior to investing in any stock market asset. Investment options can assist you in reaching your long-term objectives, such as preparing for your child’s education, purchasing a home, and so on.