I am sure these two words, savings and investment, are not new to you. But I doubt if you have been intentional about knowing their differences and which one must be prioritized.
In this article, I will assist you in deciphering between the two words and make a choice on which one to prioritize.
Savings means storing money safely so that it is available when one needs it at any time. One may save for different purposes, such as buying a new car, going on a vacation, starting a project, or having an emergency fund for unexpected expenses.
Saving is an excellent way of meeting short-term financial goals. There is almost no risk involved because your money is safe. But the disadvantage is that the returns are meager.
Pros and cons of savings.
In terms of pros, saving money is a good way to have money readily available to help you attend to unexpected circumstances. But for investment, you have to wait for it to mature.
Apart from that, saving is good for attaining short-term financial goals such as starting a new project, buying a car, and attending to health needs, among others.
In addition, there is less risk when you save money than investing it.
For the disadvantages, savings do not bring enough yields compared to investment, no matter the duration it takes.
Secondly, money saved over some time loses its purchasing power due to inflation, thus a general increase in the prices of goods and services.
On the other hand, investment is making your money work for you by putting it into financial instruments like bonds, mutual funds, treasury bills, company shares, among others. Unlike savings, investing is risky because there are higher returns over some time.
Investment is a good way to meet your long-term financial goals. However, you must choose a package that corresponds to your risk tolerance level and aligns with your goals. One thing worth noting is that investment has no guarantee whatsoever because there is always the risk of losing your money.
For instance, if you buy shares from Company A, and they later go bankrupt, you may lose all your money. For this reason, it is important to diversify your investments so that you don’t lose all your money when one investment fails.
Pros and cons of investment
The good side of investment is that it gives you the chance to earn higher returns compared to just saving money. Say it helps one to to grow their wealth over a specific period.
Secondly, it is a good way to achieve your long-term financial goals such as buying your dream house and planning your retirement, among other things.
The bad side of investment is the risk of losing your money, especially if you don’t diversify your investments.
Additionally, it requires high discipline and commitment as well as longer time horizons before one can reap good benefits.
Now, the question is whether you should save or invest your money. The answer to this question will depend on one’s financial situation, goals, and risk tolerance level. Assess yourself to see what works best for you, and go for it.
I hope you enjoyed the read!!
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