Saving Vs. Investing: Which one is the right strategy to choose.

Saving and investing are both important concepts for building a sound financial foundation, they are not the same thing. In this article, we will cover what saving is, what investing is, and help you achieve a more comfortable financial future.

Are saving and investing similar?

Yes, though they have differnt features, they involve putting money away for future reasons. Both use specialized accounts with a financial institution to accumulate money. That is for those who prefer to save, opening an account at a bank, and for investors that means opening an account with an independent broker.

What is saving?

Saving is the income set aside to be used at some point in the future. The exact amount you will keep depends on factors like income, debt and expenses. People save for different reasons such as purchasing a new item, going on a vacation, or having an emergency fund etc.

PROS Of Savings

Savings can act as funds for short term goals like buying of new phones or purchasing your dream item. It can also serve as an emergency fund in times of need.

Risk of loss of funds is minimal in savings, since they are held and protected by banks. In Nigeria the institution responsible for Depositor's fund protection is (NDIC) set up by the CBN in 1983. Also, bank products are generally liquid, meaning that you can your money as soon as you need it.

CONS Of Savings

The disadvantage of savings is that it is used for short term goals which can bring much lower returns. Another factor to consider is that purchasing power can be reduced. Which means when inflation is high the value, the prices of goods and services increases making everyday expenses mopre costly which impacts the cost opf living.

What is investing

Investing is the process of buying assests that increase in value over time in hope to provide returns in form of income. It also involves the purchase of securities, real estate and other valuable items in the pursuit of capital gains or income.

Investing is a way to reach long term financial goals. Investing involves taking risks, its essential to choose investments that allign with your goals, risk, tolerance and time horizon.

PROS and CONS of investing

Pros

There is a potential for higher returns of investment. Since investment is a long term goal it can help to achieve long term finacial goals. Also spreading investment accross various assests and sectors can minimize the impact of a single assest performance or fluctuations.

Cons

When you invest, theres a probability of loss of capital, and you can loose all or some of your investment if the price you bought at becomes cheaper. Investment requires research, disciplineand commitment. Fees can be higher in brokage accounts, but many brokers offer free trades. Investment also requires more tiem horizon.

Which is better? saving or investing

Neither of the two is better, and the right choice depends on your current financial position. Saving and investing are both important.
Saving provides a safety and a way to achieve short term goals, while investing has the potential for higher long term returns and can help achieve long term financial goals.

However, investing also comes with the risk of losing money. Each approach has its own pros and cons, and its important to find the right balance that works for your financial situation and goals. Both saving and investment can help build wealth, protect against inflation shocks, and provide a solid foundation for a more secure financial future.