At the outset, let’s differentiate between the two terms, viz. savings and investment. While the terminology is often used interchangeably, there is a perceivable difference between the two.
- Savings: can be defined as money that is available when you need it, making it easily accessible. However, the downside is that it may lose value owing to inflation.
- Investments: can be defined as contributing your money (or savings) to a financial instrument such that it may have the potential to increase in value over time, even allowing for inflation.
While savings may help you gain financial freedom, they may not help you work towards creating wealth in the long run. For instance, you may have funds at hand in order to purchase your dream car, but when you’re planning ahead for your retirement, the prudent investment would help you build a possibly sizeable corpus given time and the right investment tool.
A good way to decide whether you should save or invest could be to identify your purpose or goal, whether they are short term or long term. Though it may be helpful to save a decent amount of money to meet your short term goals, emergencies and casual expenses; in the long run your needs may change and inflation will also be accounted for where saving money may not help to achieve your long term financial goals.
Investment can help to bridge the gap between your future financial goals and your current situation. For potential wealth creation, it is advisable to start investing early. When you plan to invest for the future, always keep your financial goals and investment horizon in mind. It also helps to understand just how much risk you are willing to undertake in order to earn commensurate returns.
You can consider investing in a financial product such as a mutual fund, once you have saved up some money. Investing in a disciplined and systematic approach through SIP or systematic investment plan will make your money work harder for you and you can avail the benefits of rupee cost averaging and compounding if you stay in for the longer duration.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.