Investing Vs. Saving: Which Should You Do, When, And How?

Managing finances is a very personal and tough decision. It becomes increasingly complicated with the ever-changing landscape of laws and regulations that surround a person’s money. Most of the time, you will be debating with yourself and will always find conflicting views about saving or investing.

Usually, people think of saving as an easier route to take. Why? It doesn’t involve much risk, and cash remains in your bank account where you see it and use it if required. With this approach, there is a major problem of money being stagnant. It doesn’t grow. Interest on savings is hardly anything and any deposits that you make, the interest is taxable. So, your savings lose the race in catching up with inflation and hence, lose out on purchasing power.

When it comes to investment, the story is quite different.

Investments come in different forms and mediums. Mutual funds, stocks and shares, real estate and gold, are just some simpler ones to implement. The problem with investments is that they have a gestation and lock-in period. What we mean by that is, they have to appreciate over a certain period of time for you to reap the returns on them. We always want a quick return on our investments, but in most cases, this doesn’t happen to lead to disappointment. Sometimes, investments can go very wrong, and you land up, locking your money away for a good amount of years without any return on capital investments. In very extreme cases, you tend to lose money, as well.

To help you understand better, let us look at the pros and cons of savings versus investments.

Pros and Cons of Savings

Pros of Saving

The pros of savings over investing are far from few. The amount of money you keep accumulating over the years doesn’t decrease as long as you don’t use it for purchases or withdraw it through the banks or ATMs. It is an important angle to consider because we all have a few financial goals which must be completed irrespective of whatever happens. Making vanilla savings is a part of that.

Saving also allows you to save a fixed amount every month as a compulsory saving. If you set a goal and keep saving toward that goal, you are always aware and eager to push yourself to meet that goal by saving more and more. You can divide the amount of a specific tenure of months and decide to keep aside that amount away every month to achieve the goal.

Cons of Saving

For every good thing, there is a downside as well. We all know we grow or inflate as a country every year in terms of financial growth. Due to that, invariably, without us realizing, our savings remain stagnant. They don’t move along with the market. Neither up nor down. This is one of the biggest downsides to having savings.

We spoke about goals. When you invest in savings, you know your money is only going to grow, say by 2% due to the interest. With investments, it may have grown a staggering 8%. To make up the difference between getting that extra 6%, we must lock away more savings than we would have invested and yet got higher returns. Due to locking away your money for a significantly longer period, your operational expenses come down, and you will start operating hand to mouth. Apart from traditional saving schemes, savings don’t grow on their own, and that is a very important parameter when you are deciding what you want to do with your money.

Pros and Cons of Investing

Pros of Investing

As opposed to savings, investing can be a beneficial option to make your money grow, if you have the eye for it. In today’s financial and investment landscape, the options for investments are far from few. Every bank, whether it is a retail or consulting, has a robust scheme for you to invest your money well and safely, deciding how much risk you want to take. Either way, investing helps money grow several folds, very fast as compared to putting it in a savings account and waiting for it to grow at a minuscule pace.

In investing, you will have to invest less amount of money over a longer tenure for it to materialize and be large enough an amount for you to appreciate. If you have a longer bandwidth and can wait for results, your returns on the investments will be substantial. Not just your basic return on the investment that you do, but the capital gains that you receive from it also will keep earning you money through interest for a very long time.

Cons of Investing

Investing is not considered to be a very safe option if you don’t know how to play your cards well and have the acumen of how much to invest where. Don’t jump on the bandwagon of investing in mutual funds because everyone is doing it. Most people make the unfortunate mistake of not analyzing the market trends well enough before investing.

Be well informed when you invest. Investing in real estate is again a risky affair without a clean background check, which most people fail to do. The promise of high returns on a cheap investment shouldn’t be the attraction. The attraction should be the authenticity.

Investment has a dark side because it is way too dependent on the market. The minute the market goes down, the investment loses its value and becomes lackluster. It also means it will not appreciate, leaving you in a financial bind. If such an event happens, don’t panic and sell the investment or pull your money out as it will occur in losses. Have patience and keep the investment locked in for such time till it starts appreciating again. All you will have to do is either compensate by saving more money in the interim or delay your goal until your investments increase in value.

Author’s Bio:

Namit is fond of reading, writing & meeting people. He loves writing about Invoice Management System. In a former life, he worked as a content specialist and has good knowledge about finance.

 

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