Earning might be easy but saving and investing requires effort and knowledge. What portion of your earning should be in saving and what portion in Investing must be defined for securing your future economic needs? We often see the same level earner live different lifestyles after certain years. This is because one understands the power of compounding and one does not. Just saving might not give you that liberty after your retirement on the other hand just investing does not result in security as there is risk involved.

What is Saving?

Saving in simple words, setting aside a part of your income for future needs. It can be in the form of a fixed deposit, normal saving or just keeping cash with yourself. It is also used for creating emergency funds for future needs. Savings is less or less risky compared to investment. It may or may not be specific purpose driven. 

What is Investing?

Investing means putting your income to the assets that will bring you cashflow in futures. For example, purchasing stocks will bring you dividend and capital gain, purchasing commercial buildings will bring you rent and capital gain. The goal of investment is creating wealth. It is risky comparing Savings, some common options are MFs, Shares, Real estate. 

Differences Between Saving and Investing

Both are important while the purpose and outcome of both are different. Here are some differences between Saving and Investment.

Risk: Savings are typically regarded as low risk because the principle is secured, particularly in insured bank accounts. The level of risk associated with investing, however, varies based on the asset class selected. Investment values are subject to change, and losses are possible.

Returns: Interest income is available from savings accounts, but these are often low. Higher returns are possible from investing, especially over the long run. It's crucial to keep in mind, though, that investing also entails a risk of possible losses. 

Time horizon: Building an emergency fund or saving for a down payment in the near future are just a few examples of short- to medium-term requirements and goals that are often connected with saving. Long-term objectives, including planning for retirement or building money over time, are better served by investing.

Liquidity: Savings accounts are quite liquid, so you can get to your money quickly and easily when you need it. Depending on the type of asset, investments may have varied levels of liquidity. While some investments, like stocks, can be converted into cash rather quickly, others, like real estate, may require more time and work.

Conclusion 

Saving and investing are complementary tactics with distinct goals. Savings are primarily concerned with maintaining money and taking care of immediate expenses, whereas investing strives to increase wealth and produce better returns over the long term. Based on your financial objectives, risk tolerance, and time horizon, it's generally advised to adopt a balanced strategy that combines both investing and saving. In Nepal IPOs are good options for investing using Mero Share, however careful research of the company is required.

That's all for today! Please share your thoughts in the comment below. Which one do you like and why?