Saving vs. Investing

Definitions

Savings- The portion of current income not spent on consumption


Investing- The purchase of assets with the goal of increasing future income

Purpose

Savings

Savings helps build financial stability. People save for emergencies, also used for short-term goals.

Investing

Investing is to build net worth. Investing is used for long-term goals and retirement

Advantages and Disadvantages

Savings

  • Savings is very liquid, meaning it can quickly be converted into cash
  • Having at least 6 months worth of expenses i emergency savings helps eliminate the need of a loan
  • Use your savings account for short-term goals instead of paying someone else for it
  • Savings allows you to think about opportunity costs and trade-offs
  • Savings earns interest
  • Earning compound interest on a savings account is better than earning simple interest
  • Having savings lowers stress about not having money
  • Savings has a high liquidity level so i can access it quickly

Investing

  • If you are willing to risk you have the potential for higher returns
  • Reach your long-term goal more easily
  • owning a share or stock of a company you will make more money
  • Some investments are tax free
  • Having a higher net worth makes it easier to get a loan because you are valued more
  • Variety of risks
  • Improves spending habits
  • Make more money over a long-term investment

Examples

Savings

  • Commercial bank savings account
  • Certificate of deposit
  • Money Market Accounts
  • Mutual Fund

Investing

  • Bond
  • Stock
  • Real Estate
  • Index Funds