Investing vs. Savings

Is there a difference between investing and saving? Or is 'investing' just another word made up in order to allow financial advisers a greater percentage of your life savings?

Simply put, investing can be explained using a mathematical equation.

Savings = Disposable Income - Expenses

Savings refer to any proportion of your income or earnings after tax that you have not spent. If you earn $2,000 monthly after tax and your monthly expenditure is $1,500, this not only indicates not only that you should find another job, but also that your total monthly savings is only $500.

Investing on the other hand, is a portion of your money that you have set aside that works for you. Yes, it comes from your savings, but you have set it aside for the longer term, hoping that this money increases in value based on the appreciation o products that you purchased with it.. This could be money that you had placed in various stocks, bonds, or real estate or mutual funds.

Investment also come with a higher level of risk than funds that are simply part of your savings. Because of this risk, you generally expect returns on your funds to be greater in the long run.

So, Why Should You Invest?

Now that you know the difference between savings and investment, you have learned that simply setting a portion of your money aside in savings, is not going to increase in value the way investing can. Saving doesn't help you generate wealth nearly as fast.

Sure, saving money is the safe way to go, but how safe is it really? Consider that money you are saving may be getting 3% or 5% interested, but you're probably actually losing money due to inflation and cost of living increases.

Investments on the other hand work a little different. As mentioned previously, although investments comes wiht some risk, wiht proper risk analysis and careful planning, you can stay ahead of inflation and cost of living increases with greater return on your monry.

You don’t need a lot of money to invest. There are a many options available through stocks, bonds on government securities and offer ever better returns due to their liquidity. Lets look at one stock option, in 1999 NCB was trading for about 0.99. Today NCB, in a market that is considered to be bear, is tarding at 23.00. Now if you took $10,000.00 In 1999 to buy NCB, that would today have been about $232,323.23 (did not calculate the cost of the transaction nor the dividends you would have earned)

Of course you might today end you with 50% of your initial principal if you had made bad investment decisions. But lets say your had walked in to an Investment adviser, the picture would have been way different. With diversification and proper analysis, over the long run, your investment would have yielded you a higher return than the saving accounts.

Hind sight is 20/20, however, what’s true is that the rich stay wealthy by investing, the poor gain wealth by deciding to invest, the poor who stay poor, they only saving and those who don’t…well they can’t even afford to read my article.