Difference Between Saving and Investing

Difference Between Saving and Investing

A smart person is something relative. If you do that well with people, then you are described as “someone smart”. If you are good with linguistic, then you are “smart with words”. There are a whole lot of examples to give, but we’ll like to narrow down our focus to financial literacy. You need to have a certain level of literacy when it comes to money, or you’ll suffer bankruptcy. On a more specific note, we’ll be discussing the difference between investing and saving.

As similar as these two positive money practices may be, you need to know that they are different. We’ll get into that in a moment, but before, let’s see how the definition of these terms can make a difference between saving and investing.

Definition of Saving

When you make your monthly budgets, do you set money aside for emergencies and future purchases? If you do, then you are saving money. Basically, saving money means putting aside a certain amount of money towards achieving a particular future goal.

Definition of Investing

Another way of addressing the question – “what is the difference between saving and investing?”, is to really understand the meaning of investing. When you spend money on something, hoping that it will give you more money in the future, then you’ve made an investment. Basically, investment means spending money on assets that can bring back some profits/benefits in the future.

Knowing the meanings of these words can help you understand the difference between saving and investing?

Saving vs Investing Comparison Table

Here is a brief summary that can answer the question – “how is investing different from saving?”

Basis of ComparisonSavings Investing
Meaning Putting aside a certain amount of money towards achieving a particular future goal Spending money on assets that can bring back some profits/benefits in the future
Purpose To meet short term and urgent financial requirements Long term financial appreciation of assets
Benefits No profit. Just what was saved Compound return of profit over a long period of time
Tax No tax payment expected Expected to pay tax most of the times
Inflation The value of the money may depreciate as a result Has the ability to combat with inflation rate
Examples of differences between saving and investing Can be done only by putting away money, either in liquid, in a bank account or other forms of savings account A new business, stocks, real estate, etc.

This table is a good summary about the difference between saving and investing. It contains all the fundamental information about the two.

Conclusion of the Main Difference Between Saving vs Investing

It is important to cultivate these financial habits because they pay big in the long run. Try to set aside at least 20% of your income per month, not necessarily to satisfy your desires, but to meet your needs and accumulate cash for investment. It may be challenging, but you’ll be glad you did so over time.