What is the difference between saving and investing?

Often the words saving and investing are used interchangeably, but exactly when do we need to save and when to invest?

What is the difference between saving and investing?

Saving is putting money aside for future use. Investing, on the other hand, is when using the saved money for purchase of assets which are expected to bring future returns. In other words, people grow their wealth with investing.

1. How much to invest and how much to save?

Start by defining your financial goals and the period for which you want to achieve them. For the goals you want to achieve within the next year – save, and for your long-term goals – invest.

2. What to invest in?

After setting aside a certain amount of your savings, you could significantly increase your funds by investing. Unlike deposits, mutual and exchange-traded funds, shares and bonds have a much better return. Once you create your investment portfolio, you will get to the point when it will bring you regular and steady income.

3. When to start investing?

Most financial advisors will tell you to start investing when you have repaid major part of your debt. But that is not necessarily true. It all depends on the interest rates. For example, if you pay 5% interest on your loan, but a certain investment brings you 7% then you can invest the funds from your loan and earn 2% return without even moving a finger. Although, before you start investing it is good to have some money aside for unforeseen circumstances.

4. Who could help me with investing?

You are ready to invest but you don’t know where to start. In this case, a reasonable first step is to meet with an investment advisor. He can advise you on the appropriate investments for your profile, explain the potential risk and return and recommend a strategy that is tailored to your needs.

Keep in mind that investing is a long-term process and it is important to be patient. Build the habit to save for your short-term goals as well as for investments.

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