Building the right financial strategy is essential for securing a happy future for you and your family. If you want to be one of these energetic retired people travelling around the world, you should start saving or investing your money now. But what is the difference between saving and investing? In this article, we’ll compare savings vs investing so that you can choose a preferred strategy to follow.
Saving
What is saving?
Saving is a financial strategy in which you don’t spend all the money you have but rather set it aside for unexpected events or desired purchases. In the old days, piggy banks were the iconic tools for saving; now, people use what is called a savings account.
To learn about other ways to save money as an expat, read our article.
What is a savings account?
It’s what it sounds like — an account in a bank that keeps your funds safe. Besides, the bank pays you interest rates as you keep your money with them. The savings account is perfect for short-term goals even though the rates are not so high and vary from bank to bank. After we have defined what a savings account is, let’s look at the pros and cons of saving.
The pros and cons of saving
| Pros of saving | Cons of saving |
|---|---|
| Safe — little to no risks | Interest rates may be lower than inflation rates |
| Free | Low return |
| Suitable for beginners, doesn’t require deep financial knowledge | Restricting your current budget |
| Flexible (depending on your bank and account terms) | You may have to pay taxes |
| Good for short-term goals | Interest rates can change over time |
To sum up, when you’re comparing savings vs investing and seeking security, start with opening a savings account. You may wonder what is the main difference between saving and investing. The answer is that while saving, you don’t lose your money.
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Investing
When would it be a good idea to invest your money instead of putting it in a savings account? To answer this question, we should understand what investing is and how it works.
What is investing?
Investing is a financial strategy for growing money online and at home through the stock, bond, or mutual fund markets. Simply explained, money investments are when you buy something (e.g., a small portion of a company, precious metals, etc.) and expect its price to rise over time. When this happens, you sell your assets and gain a profit.
The pros and cons of money investments
Continuing our saving vs investing comparison with some disadvantages and benefits of investing.
| Benefits of investing | Cons of investing |
|---|---|
| Higher returns | Higher risks |
| Good for long-term goals | Requires certain skills and knowledge |
| Your income may be higher than inflation | You may be charged commissions |
| Provides flexibility | You may have to pay taxes |
| You may have tax advantages | You have to be committed and calm |
Concluding remark: you may experience the benefits of investing only when you’re cool-headed and make decisions based on extensive research to not lose your money or become a victim of a scam scheme. For those who are ready to take risks, investing may be an attractive option if we compare saving vs investing.
To save or to invest?
After we learn what a savings account is and how money investments work, we may decide which strategy to follow.
To save
- Short-term goals;
- You’re only entering the financial world and don’t want to risk;
- For the safety net
To invest
When would it be a good idea to invest your money instead of putting it in a savings account?
- For higher returns;
- Long-term goals and preparing for your retirement;
- When you have spare money that you’re ready to lose.
You may also combine and have both savings and investment accounts.
Conclusion
In this article, we compared saving vs investing. After you learn what is the difference between saving and investing, you can choose a strategy that seems right to you. Here, we listed the pros and cons of both options, but remember that the final decision is on you. What we can say for sure is that sending money back home is better with Profee, a fast and secure solution for NRIs.
