Difference between Savings and Investments

The best way to earn and create wealth with your earnings is by opting for saving schemes that will help with capital appreciation, offer tax benefits, and help you build a strong portfolio that will reap benefits in the long run. 

 

Let's first grasp the fundamentals of saving and investing before setting out on our path to financial independence. An investor with discipline strikes a balance between the two.Saving is the act of storing hard currency in incredibly liquid and safe securities.

 

The practise of investing involves employing money or capital to produce a secure and respectable return over a set amount of time

The benefit of saving money is straightforward: You may live in more security. If you have money saved up for emergencies, you will always have something to fall back on. Additionally, you might be able to take chances or try new things if you have money set up for discretionary spending.

With the right saving tools, like a savings account, FD, RD, etc., you can ensure that your hard earned money gets enough time to grow, ensuring you get handsome returns on it by the time you retire and need this amount for your retirement.

Investing is all about creating a colossal income which can be availed after a fixed long term. Generally, there is a misconception regarding investing, and it is confused as a type of saving. But this is not the case. Investing, unlike saving and trading, is a long-term process. It also includes a high level of risk as compared to saving money in more secure instruments, like FD, National Saving Certificate, and other government schemes.

There are diversified investment portfolios which can assure you the diversification of your risk and profit while investing, which could include-

• Stocks-

  One way of investing is buying shares of a stock from a stockholder. It means you’re now the shareholder of the particular stock. As per your budget and stockholder’s rules, you can own a good percentage of a share or a stock. A particular share will earn you a guaranteed proportion of that stock. It too has diversified investment portfolios like common stocks and preferred stocks.

• Bonds-

  By purchasing a bond, either from a government or private body, you become the bondholder. It is also for a fixed period of time, and your money, along with the money of many other bond purchasers, are invested by the issuer of the bond, and you get its fixed interest rate.

The basic difference between saving and investing in the returns. Although many people consider it one of the diversified investment portfolios, it is not exactly so. Saving is like a reliable backbone, especially in the times of need. It is the most important part of income.

 

Maybe not frequent and large amounts, but a consistent and fixed amount should always be saved for financial continuity of oneself. Saving is primarily done for unexpected future needs and while it might not bring you as much profit as investments, savings gives you great financial support. Also, it could be for a short period of time as well, and except in some cases, saved amounts can usually be withdrawn anytime, which is not the case with investing and trading. 

 

One of the major reasons why saving is completely different from investing and trading as it does not include the usage of money to make money. Instead, a particular amount of money is just saved for future purposes. Whereas on the other side, trading and investing includes putting money into another zone for further wealth creation. Also, trading and investing are different processes on the grounds of time period and amount of risk involved.

Let us take a quick look at the type of investment avenues and goals that different earning individuals could create:

        1. Wealth Creation

Saving money a decade ago was not more about earning higher returns but about how you can make average to decent returns whilst ensuring your investment amount is at the lowest possible risk. Fixed Deposits, Recurring Deposits, Post Office schemes, KVP, NSC, Bonds, etc., are some of the instruments one can often turn to for low to zero risk and basic returns. 

        2. Tax Saving goal

In today's times, every earning individual is very well aware of the income tax that is payable to the government every financial year and wishes to start aligning it from the very beginning. Planning your taxes and filing income tax returns every year is of utmost importance, as that can help you budget your expenses and save for the future.

Here are some of the ways you can try to save tax on the income you earn every year:

1. Parking money in different tax-saving investments 

2. Get rent deduction

3. Get deduction of EMI paid towards home loan

4. Contribute towards various NGOs and charities

5. Get a deduction on your insurance premiums.

It is essential for every taxpayer to know the deductions available under various sections of the Income Tax Act. By making use of an income tax calculator, you can calculate your taxable amount for the financial year and select tax-saving investments accordingly.

        3. Insurance Plans

In recent times it has been noticed that people like planning in advance, and the rise in inflation that the world has seen in the last decade has made everyone cautious. Not only are insurance policies a priority for this generation, but they are also a great way to mitigate risk for the policy owner and their family members.

 

A major difference between investment and savings is that you can invest in the right instrument, like an insurance plan, for example, which will not only offer you protection but also help you save taxes on your annual premiums. This is only possible when you plan your insurances wisely and create an investment goal, and budget accordingly.

        4. Retirement Planning

It is undeniable that stress in today’s day and age has drastically increased, paving the way for the youth to consider retiring early and thinking of their finances. Most millennials make retirement nest eggs a separate goal and start saving towards it at an early age itself.

It is easy to build a saving habit and put a chunk of your monthly salary or current income directly towards your savings plan. The aim here is to have enough money saved in wealth creation schemes by using an investment calculator and working towards a stress-free life post-retirement.

Depending on the level and type of risk you are willing to bear, choose between saving in a low-risk low, return option or investing in a high-risk, high-return instrument. 

Conclusion

More and more people are becoming aware of the importance of a diversified portfolio, which would be a mix of health and life insurance policies, tax saving schemes, equity or moderately risky schemes, commodities like gold, silver etc., and real estate, to name a few of the many avenues. When you start saving at an early age, if you are single still and do not have many family responsibilities, you are free to take risks by investing in instruments with higher risks and offering greater returns on your investment.