* Image courtesy of Dreamstime.com
If you’re just beginning to learn about how money really works and are wanting to take control of your finances, you may not be completely clear about the terms that are used in the financial sphere. Hopefully, I can clear up one common cause of confusion; the difference between saving and investing money.
Most people know what saving is, but it’s good to define the meaning so that you can see the difference between this and investing. So, to save means putting away money a bit at a time, usually to pay for something specific or for a ‘rainy day’ fund.
Savings are usually kept in a bank or building society account and your money is easily accessed when you need it. Some accounts may pay you interest on your savings, but this is more of a benefit rather the sole aim of the money.
Money kept in savings is generally at a very low risk of loss, but remember that savings are still at risk of losing value due to inflation (where the buying power of your money and any interest earned on it doesn’t keep up with the increased cost of living and therefore what your money can buy now will be less than what it can buy you in the future).
Investing is still a form of saving, but here you are taking some of your money with the aim of growing it by putting it into things that you think will increase in value e.g. investing in stocks, shares or rental property.
Money that is placed in such investments is at a higher risk of loss, as whatever you choose to invest your money into may not increase in value and may actually decrease in value. Usually, the higher the risk of an investment, the higher the amount of ‘return‘ (what you’ll get back on top the initial amount you put in) you could receive.
For more on saving and investing, you may like to read ‘Are You Within The Recommended Guidelines For Your Monthly Expenses?’