Saving and investing are two different terms and concepts but some people still use them interchangeably without knowing the difference. These two concepts are very important to understand for every individual so that they know how to keep a balance between the two. By the end of this blog, you will be able to know the difference between savings and investment and which one is better for you.
So, let’s begin.
Difference Between Savings And Investment
The two concepts of savings and investment are totally different from each other in terms of risk, returns, liquidity and purpose. However, both are focused on a better financial future. Before jumping on to exploring the key differences between savings and investment, let us first understand the meaning of both individually.
Saving means putting some money aside to buy something in the future, get a lump sum amount later for your kids’ education or simply build an emergency fund that you can timely access. Saving is like parking your cash for small or long-term in places that offer higher liquidity and some return as a protection against inflation.
When you invest money, you are actually putting aside a huge portion of your money that in some cases also works for you to generate more money and in other cases give you a huge return. The risk and returns involved in investing, as compared to saving, are huge and also the money is not liquid to be withdrawn quickly and put elsewhere.
It doesn’t matter if you are a salaried person or running your own business, you should have some amount kept in savings for any unforeseen expenses or loan payments and a chunk of your money invested somewhere to generate higher returns and increase your wealth.
Let’s take a look at some differentiating factors that separate savings from investment.
The capital required for saving is far less than what is required for any sort of investment. You can start by just saving PKR 1000 every month or any amount that is convenient for you. After a certain period, you will have a sum of money which you can use to buy something or probably invest somewhere.
For investment, you will require a relatively larger sum of money with which you can buy something that will be appreciated in value after a certain period of time. For instance, you can invest in gold if you think that the prices will rise in some time, invest in stock or simply buy a property with promising capital gains in the next few years.
Savings are a lot less risky than investment. People save money in saving accounts or buy bonds that offer less risk and better monetary growth. However, the person investing is playing in a major league and willing to take a bigger risk for higher returns. The capital required is higher, the risk involved is higher but the gains an investor will make will be even higher. No one should invest their hard-earned money blindly and do some sort of risk assessment prior to investing in a particular business, stocks or real estate. While investing your money, you should be completely aware of the level of risk you are about to take because some part of your investment may be lost.
The liquidity of saving and investment varies and is a distinctive factor to distinguish between both. Savings are more liquid as compared to investment. You can withdraw money from your savings account or cash out your bonds and securities but the investment is sometimes long term and difficult to cash immediately. For instance, if you have invested your money in a business or real estate, you can’t simply withdraw money. You will either have to sell your asset or keep it as collateral against a sum of money as a guarantee to pay back.
Purpose Of Saving And Investing
People have different short-term and long-term needs. The purpose of investing or saving is also very different. You save money to buy an asset, go on a trip or gather some money for your kids’ education so that you don’t have to borrow it. If you are investing, you are taking big risks to earn better returns in order to invest even bigger or grow your wealth. You can also invest to make enough money in a short time with which you can buy an asset that will generate an income for you that you can save like investing in real estate and saving its rental income.
Saving Or Investment – Which is Better?
Everyone has different needs and a different financial position. What works for one person may not work for another. As a general rule of thumb, you should not put all your money in savings nor in any investment tool.
First of all, get a clear idea of the purpose and requirement you are parking your money. If you need money within a year or so, you should put it in a savings account or buy a bond that you can cash out later and use it. But if you don’t want a sum of money for the next few years and you can pay your bills, loan payments (if any) and have something for an emergency, consider making small investments that will shield you from any bigger losses.
Investing in the stock exchange is risky if you are thinking short-term but if you have a period of, let’s say, 3-5 years, you can bear a few setbacks of the financial market and be right back on course in some time, it is the most opted method of investing. Funds you have gathered for an emergency are just for that – an emergency. You should not invest those funds and keep them in savings.
Investing In Real Estate
Investing in real estate in Pakistan is one of the safest ways to grow your wealth and increase your monthly income. All across the country, real estate projects are being developed on modern principles of town planning with facilities and amenities that you desire. The country has also picked up the trend of vertical residential and mixed-use buildings that has seen a rise in demand from buyers and investors.
Real estate investments are less risky and offer higher capital gains in relatively less time. If you are looking for real estate projects that are secure for investments, offer higher capital gains rental yield and more than one payment method, look no more. Following are some projects that you can look into.
This is all you need to know before you decide to save or invest. Keep following Zameen Blog for similar informative blogs and updates about the real estate industry of Pakistan.