Listening to a financial podcast, and a man I respect so much shared a back story on his initial idea about money. Before this time, he believed so much in having a lot of money saved in the account, he did not like the idea of investing, that was a risky path according to him, so he would rather watch the money in his account pile up and remain there, it just gave him the confidence to know that, money was available.
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Like him, a lot of people have the same mentality, they would rather watch the money in their account pile up so well than have it in what they consider an unsure path (investment), I am not going to be the judge of being right or wrong because I am still trying to find a financial foot myself, but there are people who have gone ahead of us in this financial journey, and with their ideas we can easily tell right from wrong. Let's analyze the two and then we can individually decide what works best for us.
Saving involves putting money aside consistently in a bank account where the risks are low, with all things being equal, you should be able to work into a bank and demand your money at any time you deem fit. With savings, you have little to no returns, but of course, you know your money is where you can access it, except for rare occasions when something possibly goes wrong with the bank.
Investment on the other hand means you are putting your money into the purchase of an asset with the expectation of returns or profit of some sort. Investments could give you more returns than you can find with savings, but they come with a lot of risk too.
With savings, you are almost completely certain about the safety of your money, you can easily access your funds too, sometimes with a quick swipe of your card, or pin input, you can have your money with you within seconds, it is easy to add or remove money without questions being asked.
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With savings, you may not be making any profit at all and even if you are it is always very little, inflation may eventually make the value of your money worse than when you saved it. This reminds me of the money I saved during my service year because I didn't need it at that time, I put it in a fixed deposit account. The value of the money then could buy up to ten bags of rice, but years later when I withdrew the money, I could not buy even one bag of rice with it. That shows how bad inflation can affect our savings.
Apart from inflation, your savings are also subjected to taxation when you choose to withdraw your money. Saving alone may not be enough to meet your long-term financial goals or achieve as much as you want.
Investments on the other hand can give you a high return within a short time, and you could also lose your capital within a short time too. But, with investment, diversification is possible, you can decide to spread your investment across various sectors so if one is struggling, the other sector may bail you out financially.
The value of your investment can change exponentially within a short time, either on a high side or a low Investments can come with commissions and fees that would eventually impact your profit.
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Choosing between making an investment or saving depends on several factors. You must carefully analyze what your financial goals are, your risk tolerance level, and your calculated time frame. If you are keeping money to meet a short-term goal for instance, then you should work with savings rather than taking the risk of an investment that could make you risk losing all your money.
If you have a long-term goal, the best thing to put your money in would be investment, the longer the investment, the more time you have to ride through the market wave. Depending on your ability to take risks, you will choose between either having your money saved or putting it up for investment, the choice is up to you to make.