Are you someone who has just made a big sum of money or started the working life a while earlier and now wills to make it stable and secure? When it comes to using a certain amount of money, one thing we all consider once or every now and then in life, is the option of saving or investing that money. Usually, people go for saving at an early age, since we think that our stored money may not be enough to invest somewhere big, or it’s just safer to secure it by your side until the time comes when you need it.
In such decisions, some people prefer consulting professionals in the finance field like Athena Pettit, someone who knows how you can make more out of your money, or otherwise, simply move to the other easier and commonly trusted option nowadays, i.e., investment. Now there’s a great difference between investment and saving, especially when you haven’t tried either one before or considered the benefits that may come along with each of these methods.
Yet, without exploring the do’s and don’ts or understanding the pros and cons, you may be nothing more than a sailor in the middle of a wild stormy sea. Yes, you can’t be fully safe and confident of what to choose between saving and investing unless you have your needs, goals, and outcomes properly understood, along with the benefits and loopholes that both these money-adding methods offer you.
Don’t worry if you’re not familiar with any of that and if your decision-making skills lack the confidence and steady will to choose one of them. Do you know why? Because you’ve landed on just the right place where we’re going to discuss exactly that with you. So without further ado, let’s go ahead and explore the risks and rewards of saving and investments below in detail.
What is the Difference: Investment vs. Saving?
Before we explore the pros and cons of both these money managing terms, let’s have a clearer idea of what is the difference between saving and investing after all. Is it just a matter of storing money at your own secure and safe place or at someone else’s security and reliability? Definitely not just that!
Starting with investments, this is the option of using your money in an asset. It’s more like using your money to purchase something or putting it somewhere you are promised to get a consistent amount of money/income from it after a stipulated time frame. While there are tons of investment options and types of investments, the smart investment choices only lie in the investment goals of the investor. These goals can define:
- Whether you need the income from your investment in the least amount of time or you can wait?
- How much money do you need as an income generated from your investment?
- Are you okay with waiting a short or long while to get a double or higher profit of your investment?
- Do you have enough to invest in bigger and pricier assets to get hefty profits afterwards, when the assets price rises in the long run?
Goal-related queries like these and many others that may help you determine how much and how long can you can invest your money, determine the successful philosophy of investment – which ranges from person to person. These goals, once determined, help you evaluate the risk to return ratio and the asset class you can easily take part in – without becoming a defaulter or losing hope in your investment anytime soon. So how do you make smart investment decisions after understanding your major investment goals?
It’s simple! Even when you can’t manage to consult professional financial advisors like Athena Pettit for small-scale investment or consistent investment needs, make sure to THINK TWICE AND CHOOSE WISE when you’re considering your investment options. Another smart strategy for investment is to INVEST EARLY. Once you make well-thought and wise decisions, even when you’re starting early, you will be able to have early and secure returns that can better help you steer your future financial decisions with security.
The Pros and Cons:
Now whether you’re choosing to invest for the short-term or long-term (which is more preferred to attain secure and more fruitful returns), it’s important to understand the safety and risks that you may encounter at all costs. Wait, you didn’t think this one through? No problem, we’re here to help you get prepared for your investment plans and journey in the best way possible. So here are some advantages and risks you may have to look out for in every investment you make:
- You can grow your principal/total bank balance consistently
- You have multiple options of investing in one or more assets to limit the risks
- You can often choose to get back your invested amount at the right time and end the investment plan before you move to the risks side
- You get a clearer and stronger understanding of the key investment concepts and financial decision-making
- You get prepared for future investment and professional endeavors revolving around financial decisions and plans
- You get a better idea of what investment assets work best and serve well, allowing you to learn from your losses/mistakes and make big in the long run.
- The losses with every investment – It’s always there, waiting to attack you if you’re not doing it smart or just have bad luck in that certain investment plan.
- Asset allocation, which you have no control over
- You have to manage your portfolio and make it strong enough to be capable of making bigger and more profitable investments – just like you, no one likes to trust anonymous and amateurs with their assets.
- The road to investment performance evaluation can be tough, often long and tainted with consistent losses too.
Another popular financial decision-making possibility is the easy and less rewarding way of saving your money instead of storing them somewhere for returns. In contrast to investments, saving is more like a short-term or emergency-based option of storing your money. From making savings to managing immediate or future purchases to use for emergencies, savings can be used as the money that we can use when we need them. While you invest somewhere else and you can’t expect a return on your investment until a certain amount of time, your savings stay with you as an instant approachable option of money.
In addition, savings also have a lower risk of value loss, meaning that they will remain the same amount as you save them in; unless your native country’s currency value changes all of a sudden (which doesn’t really happen just like that). But how do you make your savings fruitful and valuable? It’s simple; you need to understand what goal you have behind saving a certain amount. This goal will also help you determine how long you want to continue your savings or until you have the amount required to fulfill your goal. In this case, you need to track your savings efficiently by:
- Creating a deadline for saving a certain amount and achieving the ideal total you are planning to use in the near future
- Finalize a timeline and/or total amount you need to exclude from your monthly income or on a daily/weekly basis to complete your savings goal.
- Understand how crucial your goals are and prioritize as per their importance and your needs of investment in them.
All in all, savings is like the usage of the residue part of your income once you have managed all your monthly and consistent expenses. Sometimes, even when you don’t end up with extra money residues from your monthly income, it’s better to cut down on your expenses or some extras that can be limited (not completely excluded) and have some money for savings – especially for emergency usage. The best thing about savings in comparison to investments, is that this finance management option may not give you a return, but it doesn’t even have any negative effects or losses.
Pros and Cons:
While savings are a safer money management method, there are still some loopholes and specific advantages that make it an option for people instead of a sure-shot solution. These risks and advantages include:
- You have no or very low chances of risks.
- Your interest rates are clear, and you are satisfied with them in the first place.
- You can instantly access the savings when needed, without waiting for someone to send the money to you.
- Savings are legally tax-favored, making them a reliable money management option, especially if you’re choosing a savings account for storing the money.
- There are very low or no returns. It’s often just the money/amount you save.
- The savings are susceptible to inflation.
- They are easily accessible, making them easy to use and end. So once you buy that favorite Prada bag or use your savings on your root canal treatment, you’ll need to start over again with new saving goals and targets.
Once you understand these concepts and deeply understand what outcomes you want to attain with the money you have or will receive in a short while, it can be easier to make a smart money management decision. After all, if you’re not playing smart with your money (despite the amount), you’ve got a lot to learn in the financially growing world from the experts like Athena Pettit.