The terms 'saving' and 'investing' are frequently used simultaneously. With people referring to their assets as their life savings, the basic gap between the two expressions, and hence the two notions, has shrunk dramatically. However, it is important to understand that these are two distinct notions that act in combination. Here we will focus on the distinctions between saving and investing.
Saving is the act of putting money away for a future need or expense, i.e. for unforeseeable circumstances. Financial organizations provide a variety of savings choices, the most prevalent of which are bank savings accounts, term deposits, and so on. Investment, on the other hand, is the process of investing your money into financial goods and investment channels that have the potential to generate income or contribute to the accumulation of wealth. In Pakistan, the investment avenues include Separately Managed Accounts (SMA), mutual funds, real estate, bonds, ETFs (exchange-traded funds), and so forth. When it comes to investment, it's crucial to remember that risk and reward go hand in hand.
You should save your hard-earned money for a variety of reasons. Savings can be used as a safety net in the event of an emergency. Emergencies can strike at any time: you could lose your job, suffer a medical emergency, or decide to start your own business. You need liquidity to fall back on in these scenarios. As a result, it is usually advisable to set aside 3 to 6 months of your salary for an emergency.
Investments are the key to one's future since they help you achieve your goals. Investment allows you to outrun inflation over time. If you don't invest, your purchasing power will deteriorate over time as inflation eats away at the value of money.
Investing may help you fulfill all of your financial goals, whether it's buying a house, a car, saving for your marriage, or paying for your child's higher education. Investing your money is one of the most effective ways to attain your long-term objectives. Most significantly, investment tools such as mutual funds or equities have the potential to outperform fixed deposits and savings accounts.
The decision between saving and investing is influenced by your financial situation, risk tolerance, and financial objectives. You can, however, consider adhering to these two principles. If you need the money quickly, say within a year or so, or if you want to start an emergency fund, you should consider saving. However, if you want to increase your wealth over time, you should prefer investment.