Saving v Investing
What is saving and Investing?
Saving is a portion of current income that isn't being spent on consumption.
Investing is a purchase of assets in hoping of making a higher income in the future
The purpose of Saving and Investing
Savings help build financial stability and can be used for emergencies, and used for short-term goals if needed.
Investing is used to build up ones net worth and used for longterm goals and for retirement.
Advantages and Disadvantages of Savings and Investing
- Savings are very liquid, meaning that it can turned into cash quickly.
- Have at least 6-12 months worth of expenses saved if needed. (if saved you won't need loans)
- Use the money to pay for short-term goals
- When saving you have opportunity costs, along with trade-offs
- Won't stress about not having any money saved when needed
- Can be accessed quickly due to how liquid it is.
- Taking the risk can have a higher return at the end
- Can reach longterm goals much faster than saving
- Having that stock (or share) can make you more money in the end
- Improves your spending habits
- Having a higher net worth can make it easier to get a loan because you are valued more
A few examples
- Commercial Banks/Savings accounts
- Certificate of deposit
- Money Market Accounts
- Mutual Funds
- Index funds
- Real Estate