“The principles of wealth are true regarding large amounts and small amounts. It all begins with the smallest unit of currency.”
― Hendrith Smith.
Unfortunately, people usually lack an understanding of ‘Savings’ and ‘Investing’ and often use these terms interchangeably. In reality, they are entirely different. Money, no matter how much we love, always comes at a price. Either, in the form of the heartache of losing it or being in deep stress to continue making more.
Difference Between Saving and Investing
Savings refers to money you put aside for future use rather than spending it immediately.
On the other hand,
An investment is a monetary asset purchased with the idea that the asset will provide income in the future or will later be sold at a higher price for a profit.
The main difference between the two terms revolves around the concept of risk versus reward.
When you are saving money, you are mitigating risk but you are also compromising on the ratio of reward you may earn. Similarly, when you opt for investments, you may be subjected to higher risks but the rewards are also very high.
Where to Save or Invest?
When you are saving money, you might want to look for a place that keeps your hard-earned money safe and liquid (meaning readily available whenever you need to use or sell) e.g banks, securities, prize bonds, etc.
On the other hand, when you invest the money, you normally purchase an asset that reaps you mid-long term benefits in the form of dividends, profits, and overall asset appreciation. One of the most popular investment opportunities to avail is Real Estate. Other investments may include stocks and shares. It’s always in a discussion, stocks, or real estate where one should invest.
In case of savings, the returns are usually less. You normally park your money in a bank and earn little returns. Different savings accounts have different interest rates. Pakistan, being a developing country has a much higher percentage of interest rate compared to other countries, however, the average rate of return for around the world is around 0.9% per annum.
Investments, on the other hand, yield a much higher ROI because of the nature of investments involved. For example, real estate yields good returns in a short span of time. On average, in real estate investments, you can earn 20% and higher returns every single month. Check out some real estate projects that can get you 20%+ annualized returns.
Savings come with no or minimal risk. Why?
Because, when you put your money in a savings account, you are not compromising on your principal amount. In layman terms, when you put aside Rs.1000 as savings, it will not become Rs.900 because you are not giving it out to someone for business or further investment.
Contrarily, investment comes with risk because when you invest your money, you are actually giving it to someone else. But you should also keep in mind that despite having a high-risk factor, investment also yields higher returns.
Nature of Products
One needs tangible/ intangible assets and products to invest/save money.
If you are interested in saving money, you can put the money in savings accounts of any bank. A savings account allows you to secure your money, and provide interest on your deposits.
Similarly, there are many investment opportunities out there. You can invest in bonds, gold or even forex trading, the choice is all yours. These investments are considered to be the best investments in Pakistan. Similarly investing in business will allow you to meet your financial goals.
Usually, savings can start from a low capital. You can start saving every month from as low as Rs.1000. Similarly, investments can also start from less capital, for example, shares and prize bonds. Some shares may cost you Rs.100 only.
However, if you are looking for higher returns, you may want to invest in more expensive assets such as real estate and gold. There are multiple options of real estate available in the market, each with its own distinctive features. The ‘commercial real estate vs residential real estate’ debate is always under the limelight, whether to invest in a shop or a house.
By liquidity, we mean the ease of converting an asset into cash. In general, both savings and investments have high liquidity.
However, savings have slightly higher liquidity because you can easily get cash whenever it is needed. In case of investments, you might have to wait a bit because you may need time to sell off your investments to get cash.
Get to know whether to invest in a plot or a plot file.
People often confuse savings with investments whereas, in reality, these two have very different end goals.
People save money to achieve short term financial goals. For instance, you may want to save for the new car you always wanted to buy or you might want to save for the renovation of your property.
On the other hand, people usually invest when they want to earn good returns, grow their money or want capital formation.
When you save money, you do not contribute towards the growth of your wealth. You are just not spending a certain amount of money for the time being. In short, the growth potential with savings is quite low.
On the other hand, investments come with high growth potential because when you invest in something you are actually giving money to someone and in return you are expecting some returns. If you are investing in real estate always research on tax on property.
Interest vs Profit
This is one of the most important differences between the two terms.
When you put your money in a savings account, you get interested in your deposit. It means that the bank is giving you an additional amount for giving them your money for business and further investment.
Contrarily, when you invest your money, you get profits or returns. It may vary with each investment. For example, Graana.com is giving its valued customers 20% returns on their initial investment, making it one of the most sought after investments in Pakistan.
Graana.com has pledged to come up with the best investment solutions for all our respective clients.
By keeping in view the ROI in real estate, it is safe to say that real estate comes with huge investment benefits.
So, these were some of the major differences between savings and investments. Both have their pros and cons.
Now, the question is….
But, where to spend your money?
Well, honestly, the choice is all yours. It depends upon your capital, future goals, and personal preference.
For example, there are advantages and disadvantages of saving money. You get low returns and the growth is slow but savings also come with low risk.
Having said that, before putting your money in any of these options, try to understand how these work and how to save and invest money wisely. Nevertheless, there is tremendous importance of savings and investment for economic growth.
Still confused about savings vs investing?
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