Savings vs. Investment: A Complete Guide for Smart Money Management
Personal Finance
Money Management
Investing
Savings vs Investment Comparison
| S.No | Savings | Investment |
|---|---|---|
| 1 | Short-term: Savings is a short-term commitment. The usage of money saved is meant more for a vacation or an emergency. | Long-term: Investment is a long-term process. Usage of money invested is meant more for planning your child's future education or retirement. |
| 2 | Easy Access to Cash: Most banks provide savings account holders with easy access to cash through several portals including ATMs. | Limited Access to Cash: Money invested is not easily accessible. The process is tedious and takes a significant amount of time. |
| 3 | Money deposited with banks is considered to be safe as they are regulated by RBI and monitored by the government. | High Risk: Any investment can be lost. |
Why save?
- Pre-planned: When planning for a car, a down payment on a house, jewelry - saving gives you the liberty of pre-calculating the duration it takes to reach your goal.
- Available Cash: Expenses no longer depend on income. Ready cash is available for any unforeseen expenses.
- Interest Gains: Several banks have interest-bearing savings accounts that provide small amounts of interest for the money in your savings account.
- Financial Independence: Starting a business, switching jobs or moving to a new city - Savings helps smooth-sailing through the transition.
An average saver will do better than a great investor who doesn't save
- says David A. Schneider, CFP professional and principal at Schneider Wealth Strategies in New York City.
Why invest?
- Grow Your Money: Investment is a long-term plan. Investing methods such as stocks or bonds offer a higher rate of return on money, allowing you to create and grow wealth.
- Tax Advantages: Investment vehicles charge low tax on profit and gains. ELSS is one investment method with zero applicable tax on investment returns.
- Financial Flexibility: When money is invested in liquid assets, there exists financial flexibility to buy or sell them during an emergency.
Point to note:
- If the money will be used under five years - Save.
- If the money will be used after ten years - Invest.
- If the money will be used between five to ten years - carefully consider the risks, goals, and expected financial situation during this period before choosing to save, invest, or both.