Good money management is very crucial in human beings as the economies nowadays shift rapidly and easily. Common and key methods of managing personal finances are saving as well as investing. Both include saving money for the future, but differ so much in terms of a why, a risk, the returns and the time horizon, to begin with.
Savings entails setting aside some of each person’s income to cover future expenses. It is typically held in banks — or other safe financial institutions — in the form of savings accounts, fixed deposits, or cash reserves. The primary aim of savings is money security and safety. Savings have minimal risk, so they are for emergencies, short-term, (e.g. medical expenses, education cost or daily essentials on a household basis). However, savings rarely pay off, its rewards depend not so much on wealth development as on financial protection that they are low. The saving of savings has the major benefits where liquidity is also the main benefit. On the other hand,
Investment is the use of money for the purpose of earning a higher return in the future. And investments are purchased in the form of shares, bonds, mutual funds, real estate, or other financial instruments. Investments generally require increased risk rather than savings, because market moves have a higher propensity to affect price. But also can bring a higher rate of return. Investment is best for long-term purposes such as purchasing a house, supporting children’s education or taking retirement planning. Inevitably, invested money cannot be withdrawn quickly without any loss like savings can.
Conclusion
In summary, saving deals with the fact that it is safe, stable or has immediate access to funds, investing deals with the fact that it is growth- and wealth-creating. A balanced financial plan consists of both savings for security and long-term financial goals.
