What Is The Difference Between Savings Vs Investment Planning?

May 22, 2018 | 6 months ago | Read Time: 4 minutes | By iKnowledge Team

Saving and Investment are like two sides of a coin. Both are equally imperative when it comes to financial planning.

A penny saved is a penny earned, right? But what if you can spend money to make more money? Depending on what you plan for your financial goals, you can use either of the two strategies – savings or investment planning, to achieve it. However, it’s really a good idea to have established investments and saving accounts for your financial well-being. Here’s an overview of both savings vs investment, along with their pros and cons respectively.

“Mind your coin; you may never know when!”

― Ernest Agyemang Yeboah

What is Savings or Savings Plan?

Saving is the habit of keeping money aside for a specific purpose. Spending everything you earn will leave you with nothing to fall back on when in times of dire need. Sure, you want to enjoy and have fun, but struggling for money every day is not something you’d want to do for the rest of your life.

You can always plan your savings depending on where you intend to use them. Short term savings include vacations or purchases like buying a vehicle. Long-term savings can be used in cases of emergencies, to pay off your kid’s educational expenses or clear off the down-payment on your home. The smartest place to store your savings is in a bank account, where you also have the chance to earn a small value in the form of interest.

Pros and Cons of Saving

Pros

Cons

Easy access to money at any given point of time. All you have to do is withdraw it from the bank account it was deposited in.

 

Low rate of interest. Savings accounts have the lowest returns as compared to any other account.  Savings accounts have the lowest returns as compared to any other account.

Savings entail low risk. Your funds are at a minimal amount of risk when kept aside in a savings account. It is a stable form of capital management, that is mostly unaffected by fluctuations in the stock market.

The Deposit Insurance and Credit Guarantee Corporation of the RBI ensures up to INR 1,00,000/- per depositor, per insured bank.

 

You many incur charges if your savings account balance falls below the minimum amount threshold. The DICGC insures a limited amount, and that could be a concern to those who have saved more than the maximum limit.

Easy access to a savings fund could be tempting to some, and that makes long-term financial goals difficult to achieve.

 

Savings accounts are a great place to store funds that you can’t afford to lose; however, you must choose investing in multiple avenues if you want your funds to grow.

“In investing, what is comfortable is rarely profitable.”

― Robert Arnott

What is Investment Planning?

To put it in simple words, investing involves using your money in a way that will make more money in the long run. You could invest in a number of ways like trading in stocks, trusts, bonds or you could invest in either real estate or a business. It is always better to save a certain amount of funds in surplus before you consider investing anywhere, for investment at its core, is a risk.

There are a lot of factors that come into play when you decide to invest, from how much and where you’d be willing to spend, to the economic climate of your country. Good investment planning could lead to a comfortable retirement, peace of mind and a rich lifestyle. However poor or no investment planning could result in heavy losses, both personal and financial.

Aegon Life offers iInvest Plan that allows you to maximise your investments with market-linked returns. This plan is a great choice for first-time investors. This is Aegon Life’s ULIP plan that provides you the right combination of investment and protection, thereby lending the buyer a significant degree of flexibility. You can choose between six different funds. Besides, the plan also gives you tax benefits on premium payment.

Pros and Cons of Investment Planning

There is always a higher rate of returns as compared to savings. Depending on your investment vehicle, you have the option of generating regular income, especially through equities, bonds and property.

Every investment is a risk that varies with every option. At the same time, the amount of risk you take is equivalent to a higher rate of return over it. For example, investing in stocks has a higher risk potential as compared to investing in a bond.

One of the biggest benefits of investing is the multiple choices available to you. These choices range from properties like gold and real-estate to compounding investment vehicles like trust-funds, bonds and stocks. Stocks have the highest rate of returns as compared to any other investment.

 

Investments are typically harder to access when you need to cash in. Take stocks for example, in order to sell a stock, you will have to place a sell order and wait for the funds to become available for withdrawal. Additionally, the amount of time you’ve held, the investment determines the amount of capital taxes you will have to pay.

 

 

Planning your finances requires foresight and patience. How you choose to use your funds depends on various factors, whether you save or invest. Overall financial security can only be accomplished when you balance both your investment risks and your saving percentage. It would be a good idea to start early now to avoid having to struggle in the future.


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