Saving your money is a great habit and skill to develop when you are young, however, it will not be able to generate wealth significantly or increase your revenue channels. Therefore, saving cannot be considered an investment but it is related to an investment. This is because it is necessary to save money first in order to start making investments.
Saving is the act of periodically putting money away in a secure place such as a bank account that offers temporary cushioning especially in emergencies or unexpected events. An investment is the purchase of an item or financial instrument today in order to gain profitable returns in the future.
Some of the major differences between saving and investment include:
- Risk: Investing involves a higher risk than saving
When you are saving, you are concerned primarily with securing your money, while not losing any of its value. On the other hand, when you invest, you have a greater chance of losing your money and even decreasing its value. That said, the rewards of the investment are much higher than the savings.
- Purpose: Why are you saving or investing?
Most of the time, the purpose of saving money is so you can have it for a specific purpose within a short time frame and achieve a short-term financial goal. Usually, the purpose of investing is for wealth building and it is associated with the achievement of long term financial goals.
- Duration: How soon will you want returns on your money?
The returns on you money when you save can be achieved in a short term window. Usually the restrictions and accessibility to your money is controlled within a certain time frame that is usually a couple of months. For an investment, there are short-term investments and long-term investments. On average, for one to get some profitable returns on a given investment, the time period should ideally be over one year.
- Liquidity: How quickly you can get your hands on your cash?
When it comes to liquidity, your savings are the most liquid assets, as they can be accessed at any time and almost instantly depending on the nature of your account. However, this is not the case with investments. It takes a longer time for the money to reach your bank account after you decide to sell your investments.