Accumulating and building wealth is essential for an individual to secure his financial future. Investing and saving are both economic terms related to or concerning money or assets. Both are interchangeable terms but actually have completely different meanings. Both are activities performed to enhance or increase an individual’s wealth.
Investing vs Saving
The main difference between investing and saving is that investing means to put in money, effort, or time into financial schemes, property, or commercial ventures and shares with the expectations of achieving a profit. Saving refers to the money left over from an individual’s income which is kept for later use. It is the surplus amount available after the consumer’s expenses are subtracted from the revenue earned in a given period.
Investing is the act of allocating resources (usually money) to generate income or a greater payoff in the future than what was originally put in. Saving is the money put into an account at a bank or a similar financial organization after being set aside from the current income. Savings may be in the form of increased cash holdings in banks.
Comparison Table Between Investing and Saving
| Parameters of Comparison | Investing | Saving |
| Meaning | To put in money, effort, or time into the financial schemes, property, or commercial ventures and shares with the expectations of achieving a profit. It is the act of allocating resources (usually money), with the goal of generating income or a greater payoff than what was originally put in. | It is the amount leftover or kept aside after the consumer’s spending is subtracted from the amount of disposable income earned in a given period of time. This money is put into banks or similar financial organizations after being set aside from the current income. |
| Types of assets | Investing is a long-term asset. Investments involve putting money to work or to create wealth for achieving long-term goals like children’s education, buying a house, and so on. | Saving is a comparatively short-term asset. Savings are ideally smaller, for short term goals in the future, like sending children to school or saving up for their higher education |
| Risk | Larger risk of loss. | Virtually no risk at all. |
| Goal | One wants his or her investments to make money. | Saving is done to keep an individual’s money safe for later use. |
| Returns | Very high potential for returns since publicly traded stocks can double or even triple within a short time. | The interest rate on savings accounts is low and mostly in the single digits. Therefore returns are meagre. |
| Liquidity | Liquidity is low in terms of investing, as cash has been put into shares or financial ventures. | Liquidity is high in terms of saving as the cash is in the bank and is easy to withdraw in times of need. Saved money can also be kept at home. |
What is Investing?
Investing is the act of allocating resources (usually money) to generate income or profit. It can also be considered as the money spent by a shareholder to buy shares of a company. In economic management sciences, investing equals long term saving and has potential for long term returns.
There are five main investment types or asset classes, each with its own risks and benefits. They are shares, growth investments, equity investments, defensive investments and property. Stocks and equity investments are considered the riskiest of the five major investment classes, but they also offer the greatest potential for high returns.
Investing is how one can take charge of their financial stability. It allows the growth of wealth and also generates additional income if needed. A few factors that investors consider before making investment decisions are returns, risk, investment time period, taxes and liquidity. Safety, income and capital gains are the three main objectives of investing.
What is Saving?
Saving is the act of putting away a part of a person’s income for future use. It can also be considered as the money left over from an individual’s income. It is the money kept aside, especially in a bank or financial society for the use in the future or for the flow of resources accumulated this way over time. Saved money is also kept at home sometimes, but this money does not earn interest in return.
Saving is important because it gives protection against financial emergencies and helps in wealth building. Saving is usually done for short term goals. Forms of currency, bank deposits, shares and deposits are examples of sources of saving. Saving also involves reducing expenses, such as recurring spending. Broadly, it refers to any amount of income that is not immediately used for consumption. In economic terms, savings is defined as taxable income without consumption.
Main Differences Between Investing and Saving
- Investment means to put in money, time or resources into something to make profits. Saving refers to setting aside a part of an individual’s income for future use.
- One can invest in financial schemes, shares, commercial ventures, property, gold, and so on with the expectation of achieving profit. Saving is done to curb recurring expenses.
- Investing is how one can take charge of their financial stability. It allows the growth of wealth and also generates additional income if needed. Safety, income and capital gains are the three main objectives of investing. Saving is important because it gives protection against financial emergencies and helps in wealth building.
- Investing is done for the future, while saving is usually done for short term goals.
- Shares, growth investments, equity investments, defensive investments and property are examples of investments. Forms of currency, bank deposits, shares and deposits are examples of sources of saving.
- In economic management sciences, investing equals long term saving and has potential for long term returns, while in economic terms, savings is defined as taxable income without consumption.
Conclusion
As the primary difference between investing and saving has been explained, it becomes clear that they have very different meanings even though both are economic terms. Investing refers to put in money or resources into financial ventures, property, gold, silver, shares, and so on, to make good profits in return. One can expect returns more extensive than the sums of money initially invested.
Investing has its risks but also gives high returns. Saving refers to the amount left over after an individual’s spending, subtracted from his disposable income. It is common for people to have savings accounts in banks or other similar financial institutions in deposits or increased cash holding. It is a short-term asset with virtually no risks and does not have outstanding returns.
References
- https://www.sciencedirect.com/science/article/pii/S0304405X06001127
- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1002388