Planning for the future is an important part of anyone’s life. If you don’t take the time to think about your finances and future prospects to some extent, you will likely be very surprised when some huge expense suddenly pops up. If you didn’t take the time to prepare, you could run into some very dire trouble when that big medical bill or car repair shows up. Not planning for future expenses is a good way to go bankrupt when an unexpected bill comes in. But how do you go about preparing for those unknown future expenses? The two most common and most suggested forms of preparation are investing and saving. While some might consider them to be the same, saving and investing are actually quite different from each other. According to Beginners Invest, saving is the simple process of putting aside money in extremely safe and accessible forms like saving and checking accounts, with the goal of preserving your money while hoping to keep up with inflation. Investing, on the other hand, is the process of taking your money and buying assets you think will generate a steady income over time. Assets such as real estate, fine art, stocks, and antiques are just some of the things you can invest in. The downfall of investing is the time it might take for a return to begin coming in. In many cases, the value of the asset can take years to really climb.
Benefits of Saving Money
Saving money is the simplest and most common form of financial preparation, but it is also the slowest to grow. In many cases, the interest rates you earn on a savings account are incredibly low and might barely keep up with inflation. Regardless, having a savings account can be considered the only real necessity for future financial planning. Continually adding funds to a savings account every pay period is an excellent way to build up an emergency fund to protect you from any huge unexpected costs. According to The Economic Times, one of the best ways to keep growing a savings account is to take the common financial equation of “income minus expenses equals savings” and swap it around to “income minus savings equals expenses.” What this means is to take a chunk out of each paycheck to deposit into savings first, then use the rest to cover all your expenses. Automating the process makes it much easier to deal with as well. Another good habit to get into is to wait 30 days before making a nonessential purchase. Avoid using plastic as much as possible as it makes it very easy to splurge. Being smart about purchases and always depositing will have you saving up at a slow but steady rate.
Benefits of Investing Money
Investing can be seen as a form of saving money, but the basics of how investing works compared to regular saving is quite different. For one thing, unlike saving which is almost always 100 percent safe, investing usually has some form of risk to it. The higher, the risk the higher the potential gain, though. While the greatest benefit of investing is the opportunity for much larger gains compared to regular saving, knowing where and when to invest can be somewhat difficult to figure out. According to My Investment Ideas, because the Rupee is appreciating, some of the best places to invest currently are in stocks, mutual funds, and real estate. Regular stocks are some of the most risky investments as the stock market is in constant fluctuation; stocks can offer some of the highest gains if you are smart about your purchases and time them well. Mutual funds are a great investment choice if you want to avoid most of the market volatility. Mutual funds do still require you to put some thought into where you invest as there are many different types. Real estate can be considered the safest, but it’s also the most long-term-oriented investment. If you invest in real estate like Unitech’s group properties, you have to be prepared for the long term; there will be no gains for a number of years.
Which is Better?
There isn’t a clear winner when it comes to saving versus investing; both have their strengths and weaknesses. According to Hands-On Banking, regular saving is the short term option while investment is the long term option. Saving is definitely the safer of the two options, but the potential for profit through interest rates is just about nonexistent. Investing is riskier, but you have the opportunity to earn a profit. Neither is truly better than the other. They are just different and if you truly want to maximize your gains while keeping a stable, safe financial fallback, it’s best to do some of both. Saving and investing don’t need to exist separately. You can use both to your financial advantage.