The Finance Nest

Recently my friend saved Rs. 10000 for five months, and then he purchased a laptop with this saving. He saw this saving as an investment. Like him, many get confused and think saving and investment are the same thing, just named differently. In reality both involve setting money aside for future use, but they serve different purposes and have different end uses. 

A better understanding of these two terms helps in making wise financial decisions. So, let’s dive deep to find out how saving and investing are two different things.

1. Purpose and accessibility: Saving is a delayed expense where you put money aside from your income to spend it in the near future. This money is easily accessible and can be spent on medical emergencies, vacations, or buying a gadget. On the other hand, investment is something that is for long-term financial growth. Here your focus would be getting a better return, and you keep your hands away from liquidating it. Planning for retirement or to buy a home can be categorized under this.
2. Risk and Rewards: Typically saving involves low risk as you would keep the money in a savings account, and thus it also attracts a low return on investment, usually 3-4% annually. Investing, however, is targeted to get higher return rewards and becomes risky. You must have heard, the higher the risk, the higher the reward. Investing done in a proper way can attract a return of anything between 12-18% annually.
3. Inflation impact: Inflation reduces the value of money over time. Since saving offers a low return, it may not keep up with inflation, and eventually you would get less than what you had saved. However, investment, in general, provides a higher return on investment, which helps maintain and increase the buying power of money over time.
4. Flexibility and Discipline: Saving offers flexibility since money is readily available when needed. However, it also requires discipline, as people often dip into their savings for unnecessary expenses. Investing, while less flexible due to lock-in periods, encourages financial discipline and long-term wealth creation.

Both saving and investing are essential for financial well-being. While saving ensures short-term security, investing builds long-term wealth. A balanced approach—maintaining an emergency fund while investing for the future—can lead to financial stability and growth.