The Difference Between Saving and Investing

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Most people do not understand the difference between saving and investment, and sometimes the two are confused. Nonetheless, understanding and putting these two concepts into practice will go a long way in ensuring your financial future.

In short, saving is the short-term practice of saving money for goals or unexpected expenditures, while investment is a long-term strategy for saving money and growing it. It is important to understand the difference between saving and investing because they are two ways to make your money work for you so that you can achieve different goals.

Savings regularly deposit part of your income into low-risk or risk-free accounts. When depositing money, it is guaranteed that a certain amount of interest can be earned and the original deposit is safe.

Time deposits gradually accumulate and the money can be used later. Savings are crucial, because accumulating reserves is an effective way to ensure your financial safety when you have to pay for unexpected expenses such as medical emergency or car breakdown. This is also a way to pay a lot of expenses (such as vacation or tuition) without incurring debt.

Everyone who has income should save. Those who have not started will usually excuse that they have no money. However, in most cases, if they carefully check the budget, they will find that they are spending money on unnecessary items and expenses, such as drinks or entertainment activities-which can save this money.

Another myth is that you need lots of money to save when in fact, putting away just GHC100 a month will jump-start this critical step in your financial journey.

Another myth is; it is said that you require a lot of money, when in fact, all you need do is to put away GHC100 every month to kickstart this pivotal step in your financial journey.

On the other hand, saving is when you commit cash for the long-term and let it rise. As there is no fixed or guaranteed interest rate, it is different from investments, and there are varying levels of risk, meaning that your money is not always entirely guaranteed. The potential for profit or more ambitious growth is, however, far greater.

With terms such as stocks, unit trusts or bonds, investing may seem daunting, but it is vital to realize that investing is not gambling. After saving, one may describe it as the next step that will make your money work for you and provide extra income in the future. Opt for something that is not too overwhelming if you’re just starting out. For most financial institutions, there are different choices available for saving or investing.