Savings vs Investment(Which is The Best Way to a Financial Freedom)

We all struggle on the daily basis to increase our income and make a journey to been financially free but the more effort we put on, the less our account becomes. 

Individually, we have different financial goals but one thing is common among us all and that is wanting the genuine ways to make our money grow bigger than the way we’ve kept it. 

So in this article, I will be differentiating between the two method which is the SAVINGS method and the INVESTMENT method.

What is Savings?

Savings is the process of keeping money aside for future occurrence in order not to spend it all immediately. 

These money are often kept for rainy days or purchases and it requires opening a savings account with the banks. 

Meanwhile, it is accessible at any time of emergence.

Benefit of Savings

The most important reasons for saving is because of an unexpected financial emergencies which can be seen as follows:

1. Unexpected Health Issues: As a human that we are, our health isn’t guaranteed. We can look perfect within one minute and the next minute we are down. 

So in these regard, the money saved up is usually the next thing we can look up to just to ensures that we look fit and healthy again because health is wealth.

2. Unexpected Lost of Job: In as much as you are working under a boss in an organization or industry, your job security can’t be 100% because anything can come up at anytime. 

It’s either they are no longer in need of your service anymore or you get tired and resigned. 

So in these regard,your savings is the next thing to look up to as a means of survival before you look into something else.

3. Being Stranded: Savings have saved many of us from different awkward and unexpected situations. 

Whenever you are at anywhere and you run out of cash completely either for payment or for transport, without your ATM card, you can just do a transfer from your savings account either to a nearby POS or to a buyer. 

This is one of the reason why savings isn’t guaranteed because it is easily accessible. 

4. It leads to financial freedom: Having lots of money saved up in our account put our mind at ease always. 

Their is a joy in it to realize that you can always save yourself from challenges if need be than those who will have to wait for salaries to sort their financial issues. 

Risk factors in savings 

1. To save money requires a lot of time and it doesn’t gives one a great result like that of investment because banks wants to make profits too. 

2. Savings is easily accessible because you can get your money anytime and any moment you want and when you have access to money easily, you will be tempted to touch and spend. 

3. Yes you can earn interest while saving in the bank but it gives lower interest and it requires some certain amount before one can earn a dime. 

What is Investment? 

These refers to the act of keeping our money away with an expectation to grow in value. 

It involves having a mutual agreement with an organization /industry to use your money for some certain businesses while you gain an interest in return.

 Before investing, you must have a goal and you will need to understand the investment vehicles, their specifications and how to use them. 

It is advisable to invest early as work begins so you can see it’s advantage as time precedes before retirement and while doing such, do not to invest your whole sweat without having a bit for yourself. 

Each individual have different reasons for investing but one thing is common, we all invest to achieve set goals and these goals are usually a long term goals in order to secure the future.

Below are some of the top 10 reasons for investment 

1. Diversify one’s income 

2. Decrease Tax Income 

3. Retirement purposes

4. Growing of capital 

5. Achievement of financial set goals 

6. Supporting of family and friends 

7. Help others to achieve their dreams in the future 

8. Acquiring more knowledge and building the mind

9. To earn more income than that of savings

10. To safeguard your purchasing power. 

Benefits of Investment 

Investing money has numerous benefits but in these section, I will be analyzing the top 5 benefits of investment.

1. Building of wealth: When you invest your money, you are not only saving, you are also expecting an addition which is your interest. 

The more money you invest, the more wealthier chances you stand because aside the money you are investing, your interest everyday, every week or every month is enough to start up something else. 

In this regard, your money can never depreciate but instead, grow and increase.

2. Investment helps to save you on Taxes: This is another GREAT benefit of investing money because it put your mind at ease towards tax payments. 

For instance, when you have money and your tax isn’t due, you can invest it with an organization having it at the back of your mind that your money will grow bigger before retirement or before your tax due.

 You will be relaxed with the payment once it comes up because you aren’t exactly going to use your savings but rather some part of the interest. These have really save most of the retiree’s.  

3. It secure Inflation: The real fact is that if you don’t invest to grow your income, you will end up liquidating during an inflation. 

What is an Inflation? 

Inflation is seen as the general increase in prices which happens almost every year. These act have shut so many people up not to be able to live their desired choices of life because of the fact that they only rely on savings that isn’t growing but instead depreciating as you spend from it. 

So, if you make the right choice of investment and you invest your money, you will realize that you will always be ahead of inflation and you will have no problem once it occur because of the increase in value of the money you’ve invested. 

4. We Invest to meet up with other financial goals: Yes, it’s all a brilliant idea to invest your money in other to meet up with your financial goals and these financial goals varies, it all depends on your purpose of keeping the money away. One of this goal is education either for yourself, your families or for your children.

It is also good to go into an investment when you have a long term goal which could possibly come in like 5-10years or more. It will really enable you to reach your goal faster than expected. 

There are more lots of benefit to investment if you want to be financially stable, grow your wealth, and stay prepared for retirement. You will need to come up with an investing plan that suits your needs.

5. Investment create chances for early retirement: For you to generate lots of money and set yourself up for retirement, you will need to find a way to make your money work for you while you sit at home and relax. Like I have earlier said, your money can never grow with savings, it will definitely bring you down one day.

The more money you invest, the more advantage of the power you will have over the compound interest.

What is a compound interest? 

A compound interest is the addition of money you gained or achieve from investing your money.

Below is a super simple example of a compound interest:

  • If you invest N50,000
  • In one year your N50,000 earn you N5,000 interest, now you have N55,000 in your respective investment account.
  • The next year your N55,000 earns you N6,000 interest. Now you have N61,000 even without putting any extra money in your account.
  • The following year, your N61,000 earns you N7,000 interest. Now you will have a total of N68,000
  • These process keeps repeating itself every year and if you eventually add more money to your account, the value wouldn’t just increase, the interest will also increase.     

Risk Involved in Investments 

Investing money comes with different risk and here, I will be looking at few risk that can affect your investment returns. 

The risk can be seen as follows:

1. Market risk which comes in different categories like the equity risk, interest rate risk and currency risk.  

– The equity risk which involves the price of shares that varies at all time can affect your investment if their is low in demand and supply.

– The interest rate risk is a risk which involves losing of money due to a change in interest rate because once an interest rate goes up, the market value of bonds will drop.

– Currency risk affects those that own foreign investments. They tends to loose money when there is movement in the exchange rate. Like those that invest using dollars, if dollars become less valuable to Nigerians, then your interest will be worthless in the Nigerian notes. 

2. Concentration Risk: These risk occurs because your money is concentrated only in one investment. When you diverse your investment, you spread the risk over different types or forms of investments, geographical locations and industries.

3. Liquidity Risk: When you are unable to sell your investment at a fair price and get your money or interest when you want to, in order to sell the investment, you may have to accept a lower price as an interest.

4. Credit Risk: The risk that the government entity or company that issued the bond will run into financial difficulties and won’t be able to pay the interest or repay the principal at maturity. Credit risk applies to debt investments such as bonds. You can evaluate credit risk by looking at the credit rating of the bond.

Key Differences and Conclusions

The biggest and the most influential difference between saving and investing is the risk involved. When you save, you are putting money into a savings account. 

It has little risk of loss but also have a minimal gain. When you save, you can withdraw or take part of the money anytime and any day you want it so far you are with your phone or at home. i.e. if you are using other saving method aside putting money in your bank account.

But when you invest your money, you have high hopes and potential for better long-term gain or rather rewards but also the potential for loss. When you invest, you risk more for a larger returns but your loss can be large as well. 
It is very important and vital that you review your goals well and figure out which is the best option for you between savings and investing before venturing into it. Making the wrong choice could cost you a whole lot of money in fees or loss of potential income earned. 
Another thing is interest or money acquired, the goal of investment is to earn and grow our money while the goal of savings is to keep our money safe with a low interest in return.

Read through and choose best which among the two methods will make your dreams come through.
Please like, share and comment if you find these study useful and helpful.

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