SAVING IS NOT INVESTING
Saving and investing often are used interchangeably, but there is a difference.
Saving is setting aside the money you don’t spend now for emergencies or for a future purchase. It’s money you want to be able to access quickly, with little or no risk, and with the least amount of taxes. Financial institutions offer a number of different savings options.
Investing is buying assets such as stocks, bonds, mutual funds, or real estate with the expectation that your investment will make money for you. Investments usually are selected to achieve long-term goals. Generally speaking, investments can be categorized as income investments or growth investments.
Poor people see money as money to trade for something they want right now. Rich people see every money as a ‘seed’ that can be planted to earn and then replanted to earn a thousand more.
When you listen to the news and hear reports that the stock market had a great day, do you find yourself wishing you were investing? If so, you’re probably not alone. Sometimes one feels like he should be investing, but is intimidated. What one doesn’t realize is that he is well on his way to growing his wealth because he already is saving on his own and he is taking steps to learn about investing.
If you deposited 2,000,000/= in a savings account at 3% annual interest, it would grow to 3,641,510/= in 20 years (before taxes). The same 2,000,000/= if invested in a business with an average 18% margin a year would grow to 71,265,631/= in 20 years (before taxes).
Making a choice between either saving or investing will depend on your goal(s) for the money and your risk tolerance.
How Investments Beat Inflation?
When it comes to building wealth, time is much more powerful than the amount you invest or even the returns you earn. But it also matters where you put your money. Assuming money is set aside in a savings account at a local bank that pays a 6% interest rate. Because of inflation, the same amount of money you save today will lose value in the future. Even though you put away money on a regular basis, to beat inflation by keeping it in a local bank’s low-interest savings account.
Inflation and the Time Value of Money
If you have the basic idea of inflation — that 1,000,000/= today probably will not buy the same amount of goods that 1,000,000/= will buy next year — and you are not sure how investing will help. Investing takes advantage of compound interest over time, so the more time you invest — in general — the more opportunity your money has to grow.