Gone were the days when we were taught to just save for rainy days. I remember vividly seeing a smiley squirrel in school’s assembly teaching us the importance of saving. Today, we see many investment brokers or banks advertising different investment tools and advocating the importance of investing to ‘make our money work harder’ for tomorrow
However, this is not to say that savings has lost its value. Instead, how we view saving has a slight change as compared to before. And maybe we have confused the difference between Saving and Investing.
Saving V.S. Investing
Investing has become such a widely used word that we often forget about saving. Or rather, we may have forgotten the difference between the two.
So, what are the differences?
Savings For instance, savings can be seen as holding up a sum of money for future uses. This can be from anything that you want to save for, like a house, car or even the PlayStation that you are looking to get.
In addition, savings are also very important to keep your daily life going in cases when your income stops coming in. This can be due to loss of jobs or a situation which causes you to lose the time and ability to continue working. This is often also called the Emergency-Fund
Investing
Investing on the other hand looks more at growth. It usually means putting our money somewhere we believe will have the potential to go up in value over time. However, this is not to say that there will be guaranteed return. There are still risks going around it. However, if you are looking for ways to reduce the risk, there are different instruments which are available as well (Chat with us) and the different methods of investing (such as a passive or active approach)
Importance of Savings Yes, it may have been years ago since we last saw our smiley squirrel or the piggy bank that we used to put our savings into. But that does not mean that savings has lost its importance. Despite the importance of investing, many of us have forgotten the importance of savings! Here are just some reason why saving can be crucial too. 1- It is a matter of when
“It is not a matter of if, but a matter of when”
Not trying to steal what our minister said, when it comes to savings, it is the same as well. We will never know when our phone may break or when we might need to make the initial payment first before having our insurance claims process if we get into an accident or hospitalized. It is better to be safe working on our savings just for situations like this.
2- For the things we enjoy!
What’s Life without that little bit of fun right ? As much as we are working hard at work for our family and our future, there will still be time for things we enjoy such as a movie night or the travel trip to our favourite destinations. Hence, this is also when we can allocate a saving budget for a specific goal of ours. Or even for that new iPhone that we have been eyeing on. 3- Financial Independence
No one feels good being in debt and as much as possible, we will want to strive to be debt free. And paying off a housing loan or car loans could take time. Hence this is when our savings can come to work.
As we realise the importance of savings early, we may build sufficient savings to pay off not all but most of our debts in a shorter period of time. Beyond the importance of preparing for emergencies or on the things we enjoy, having savings also means that we can achieve financial independence much earlier on in life.
Importance of Investing
Coming to investing, is it all for the profits and in hopes to find the next meme coin to be an overnight billionaire? Certainly not! But investing goes further than just making a profit which we will be discussing. 1- Beating Inflation As much as we realized the importance of savings, the money in a regular savings account, although risk free, only generates a return of ~0.05% per annum. In some cases, up to ~2/3% at most.
“Last time I could get a bowl of chicken rice for just $2!” This is what we heard from our grandparents. But we all know this is due to inflation. Hence this is when investing can help us beat inflation.
2- Compounding Effect Investing has one simple yet powerful way of generating wealth – Compounding.
As one invests in a long term horizon with a consistent long term returns, wealth can be generated exponentially through compound interest. The compounding effect will allow your money to grow on top of the initial capital that you have put in. This is how the term “Let your money work harder for you” came about.
3- Planning for Retirement
The statutory retirement age in Singapore has been increasing every few years. Hence planning for retirement has been something most of us are looking into, especially with the rise in movements such as FIRE – Financial Independence, Retire Early
However, savings alone will never be enough for us to reach our retirement goals as the cost of living increases over time. But with the help of investing, we might be able to reach our retirement goal more practically at a comfortable rate and achievable rate.
Save or invest?
So now that we’ve got a clearer idea of the difference between the two, you may ask if we should save or invest?
Just like a farmer who plans to harvest his crop, he has to make a decision on how much he wants to consume or sell during the year and what he needs to set aside so that he can grow more crops the following year.
Saving and investing follows a similar concept. In order to plan for our future retirement, or any other long-term goals that we have, we need to make a decision on how much we need (or want) to spend today and how much we want to save for our retirement. Hence, we believe that investing and savings are both necessary and should be allocated based on our individual goals and situations. Neither one should be neglected in any way.
Whether saving or investing, financial planning will be an important place to start with. Still interested to find out more on how you can plan and allocate your savings or investments ? Feel free to contact us today to hear more from us !
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Learning about financial literacy can also be fun and easy ! Stay with us in this financial journey one post at a time to find out how ! If you haven’t already, you can check out our other work down below too, happy learning and reading !
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