Saving vs. Investing

The words "saving" and "investing" are sometimes used interchangeably, but is there really a difference between them.

The short answer is yes.

Saving is all about having funds that is stored in a safe place and that you can access easily in a short amount of time. We will review risk and reward in a little bit as that plays into why you may save versus invest.

Investing is all about putting your funds where it can grow over a longer period of time. Because there's a potential for high reward, these funds may not be accessible and may fluctuate in value in the short-term.

Saving and investing both take advantage of the concept of compound growth. Compound growth is when your money grows faster because it is reinvesting its returns.

You may also have heard that investing beats inflation, but what exactly does that mean? Inflation is the general rise of prices which leads to a decline in your purchasing more. For example, today you may be able to get 100 items for $100, but tomorrow that $100 may only get you 80 items. Generally, inflation averages at around a rate of 2%. If you put your money into a saving account that offers 1% interest rate, over time you would be losing 1%.

Let's dive a bit more using a compound growth calculator.

Action Item

Test out some of your numbers using this compound growth calculator.