The terms investment and saving must be familiar to your ears. However, not a few people think that the two are the same, especially if you are just starting to explore the field of financial planning. Do not be mistaken, because the two have significant differences.
Maybe you've often heard the cool jargon of 'money works for us'. This is the right jargon to describe investment. Because, investment aims to make money but in the long term.
Meanwhile, saving aims to save money. The goals of the two are clearly different so it needs to be adjusted to your needs and plans for the future.
Want to know which one is more suitable for you? Check out the important differences between investing and saving
1. Different Goals, Seeking Profits Vs Securing Money
One of the most obvious differences between investing and saving is the process and purpose. An investment is made when you allocate money to something that will experience an increase in value. Hopefully, you can benefit from this activity. For example, when investing in stocks, gold, property, or an investment instrument that is now popular, namely crypto assets.
Meanwhile, saving or saving is done when you save the remaining amount of money from your income (after deducting consumption costs and basic living costs) into a certain savings instrument. Usually, you will get interest every year on the savings you save. However, because the amount is relatively small, saving does not provide certain benefits because it is merely securing money to a safer place.
As is known, the inflation that occurs every year also affects the increase in the prices of various necessities. Therefore, investment tends to be more in demand by the public because it offers higher returns. One of them is investing in crypto assets that are now increasingly popular. This is because historically the increase in asset prices tends to be much higher than other investment instruments.
2. Different Targets, Long Term vs Short Term
Before deciding to invest or save, it's a good idea to first understand the target you want to go to. Because the two are very different. Savings are usually used for short-term needs. For example, when you want to buy a new gadget, go on vacation, or set up an emergency fund reserve.
Savings are generally deposited into bank accounts that have flexibility and are easily accessible. So, you can immediately withdraw money when needed.
Meanwhile, investments are usually used as long-term savings, such as pension funds, children's education savings, and so on. Because investments tend to be more profitable if stored for a long time.
For example, if you choose to invest in crypto assets, such as Bitcoin. As of April 2020, one Bitcoin is worth around $6,000. 2 years later, or in April 2022, the price of Bitcoin is already in the range of US $ 46,000. This means that if you invested $6,000 million in April 2020, your assets would grow to about $46,000 in April 2022.
3. Different levels of risk, the higher the risk, the greater the opportunity to earn
Investment has a higher risk when compared to savings, but also has a greater opportunity to earn. When you save, you just put the funds in your bank account and leave it at that. While in investing, you have to do calculations or consider the chosen portfolio to avoid losses.
In order not to interfere with your daily cash flow, you should use 'cold money' to invest. That is, the investment capital used is the remaining funds after deducting all living expenses and savings. That way, your budget needs will not be disturbed if the worst case scenario happens to your chosen investment asset.
Which is Most Right for You?
Those are the 3 important differences between investing and saving that you need to know. Starting from the different processes and objectives, targets, to the differences in the risks and financial opportunities of each activity.
Both investing and saving are both good things to do. Depending on the goals and needs of each person which is certainly different. You can choose both, because savings and investment can complement each other. However, also make sure that your financial condition will not be disturbed if you decide to invest and save at the same time, OK!
In addition, make sure you start investing with careful consideration. Not just following trends without calculations or clear targets. Especially if you want to start investing in crypto assets that have been hotly discussed lately.
Crypto assets have their own risks and opportunities. Therefore, you need to study crypto well before deciding to invest in crypto assets.
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