There’s no denying the fact that human needs are countless. They keep on increasing with time and new technological advancements. However, it also does not make sense to ignore the possibility of an unexpected event or crisis. Living in the moment certainly holds value but, it is also not
practical to spend all your income on your needs and neglect the future. This ultimately means that to prevent the dangers of problems like inflation, unemployment, or other emergencies both saving and investing are important.
1. Key differences between savings and investments
It is common to get confused between savings and investments as they are normally used interchangeably. However, there are some ways to distinguish between them easily.
When you consider savings, it is nothing but a nest fund set aside that is easily accessible in case of a crisis or an emergency. This can be in the form of fixed deposits or traditional savings accounts. Normally, savings are used for emergencies or a short-term goal like purchasing an expensive garment or vehicle.
On the other hand, investments are tools utilized by investors to build wealth over time. The main factor here is the presence of risks and gains. Some of the money set aside for savings purposes can also be used for investing. In general, people put money into investments for long-term goals like a retirement fund or buying a house.
Savings are less risk-averse and generally gain lower returns, while investments are more ambitious with returns and work with higher levels of risk.
However, both saving and investing serve a single purpose: to help you build a safety net for future expenses and goals.
2. How to strike a balance between investing and saving?
It is not practical to assume that any of the one between savings and investing is not essential in life. Both short-term money requirements and long-term financial planning hold importance in life. ‘
For forming a sound financial plan, start by getting into the habit of saving. After deducting the essential expenses from your income, set aside some money for saving purposes before using it for your other wants.
Here’s how to do that: calculate the approximate amount of expenses that you incur in 3-6 months. Then use this amount as a goal amount to be saved up and stored in your savings account for easy access. In this way, you will secure yourself from the risk of unemployment or any other unexpected expense.
Once you have secured yourself against any short-term risks, you can start planning for long-term plans. This means building funds for goals like education, house, or retirement.
While money stored in saving accounts and fixed deposits are easily accessible, they have a limitation. Savings accounts cannot safeguard your money against inflation. This means that your money will keep losing value with time. At the same time, savings can only earn you limited or fixed portions of returns.
This is where the habit of investing can help you. Investing can not help you against problems like inflation, it can also provide a window for higher returns and profits. These returns can be utilized for more expensive future goals. But, how can you invest your money?
3. How to invest your money?
As a beginner, investing can sound slightly complex and intimidating. All you have to do to start your investment journey is to start investing a small amount of money. This will help you get into the habit of investing without getting intimidated. Here’s how you can start the habit of investing:
ETFs or Exchange Traded Funds are a diversified combination of index funds and stocks. ETFs deal with a combination of stocks, securities, futures, and commodities instead of a single commodity. This is a great option for beginners to avoid the risk of investing in a single commodity.
- Unit Trust
Unit Trust services are provided by many Investment banks by charging a small management fee. It is a pool of investments that are managed by fund managers according to the goals of the investors. It is easy to start investing in a Unit Trust even with a small amount.
Investing in a stock exchange is one of the most popular methods of investing your money for high returns. At the same time, the stock market is highly volatile and can lead to losses. You can start investing in the stock market by purchasing the shares of companies listed on Bursa Malaysia. Investing in the stock market requires strong research and the ability to take risks.