I had an interesting conversation with a friend recently. She is relatively new toand wanted to better understand how it all works. However, when explaining about the why of , a curious question came up.
“Is saving the same as investing?”
The difference is quite important and probably an existential question for those who are just beginning theirjourney. Saving and are quite different So, what is saving, essentially?
Saving is nothing but money you decide not to spend. The spending can be for anything that gets consumed or is used in your life. You can keep the money in your account or take it out and keep it as cash. There was a time when simply doing that was considered enough. In fact, we have all grown up seeing piggy banks or a jar with coins. Those coins in the jar are savings in the truest sense. You are just collecting from what you have earned and storing it somewhere.
Let’s talk investing
is essentially about growth, generally at a specific rate for a specific purpose.
Technically speaking, money in the bank is also an, as you earn an interest on the sum. If your money grows, then you are . Normally, the vast majority of us start either accidentally, or it is done for us.
Your EPF contribution isn’t done for the sake of saving tax. It’s actually meant to be a EPF money gets invested in , bank FDs and company bonds. About 5% of the are in the stock market as well.fund of sorts. Your
The money is invested and earns a rate of return (current growth rate is slightly more than 8%). It’s a good example of an that is done for you.
However, true investing is when you have a purpose (can be ill defined to begin with), a time frame for the purpose, and a growth expectation or requirement.
ULIPs and non-term policies, mostly endowments, are good examples of accidental . Many of us go for them to save taxes rather than to and grow our money.
However, trueis when you have a purpose (can be ill defined to begin with), a time frame for the purpose, and a growth expectation or requirement.
Thus, if the purpose or goal is long term in nature then you choosethat are apt for such a purpose, like stocks and shares of companies or that rely on stocks and shares.
If your purpose is short term, you choose fixed return like an FD or debt mutual funds. In either case, you are if you put your savings into that are aligned to a purpose.
This is why having a goal is so important. If you are just starting and have no clue what goal you shouldfor, do this:
1. emergency fund.something for the unknown – put away 4 months’ worth of your pay cheque in a stable like a or an RD. Call it your
2. vacations.something for the short term – again choose a liquid fund or a short duration fund. Use it for stuff like
3.something for the long term – this can be for things you aren’t even thinking about yet like . Choose a good for this. A large cap fund or a would be a wise choice. You can start with an affordable sum like, Rs 1000 per month.
Know the difference. If becoming wealthy is on your agenda, don’t stop at saving, just start.