When we set out to create a plan to achieve our financial goals, different questions begin to appear about how to create an effective one and how to determine what are the appropriate strategies according to our possibilities. One of the most frequently asked questions has to do with saving and investing: what is the best strategy for me and which option gives me the best return?
In Money Investors we will show you some of the most relevant differences between saving and investing. This way, you can see which one best suits your goals. Join us!
1. What is saving and what is investing?
Let’s start with the basics: what are the implications of saving or investing? In short, saving means saving part of your income to reach some financial goal in the future or to have the ability to react in a moment of crisis.
On the other hand, investing means saving part of your money to meet long-term needs, thanks to the possibility of generating returns on the invested capital.
2. Take into account the deadline and times of each of your goals
When defining your financial plan, it is important that you define the goals you want to achieve and the deadlines in which you could meet each of them. In this way, you can more easily choose the tools that will allow you to get closer to your goals.
For example, saving is a simple and very effective method to reach goals that have short time frames. For example, if your intention is to travel outside the country without requesting a loan, a well-defined savings plan will be able to provide you with the necessary budget without any problem.
On the other hand, investing is a method that will allow you to achieve longer term goals. For example, if you invest in real estate, buy a home and then rent it, you can obtain additional constant income that will help you have more balanced finances for a long time. It all depends on the goals you want to achieve.
3. Analyze what your capital level is and what risks you are willing to take
In addition to the recommended terms for saving or investment, another important point that differentiates them is the capital that you use and the risks that are assumed. For example, when we talk about savings, we mean to control our expenses in more detail and to be able to allocate a part of our income to future goals. That is, save an amount, even if it is small, to meet a specific objective.
Now, when we talk about investing, we mean putting a part of our money in some type of financial initiative that generates profitability and represents some risks, such as a Collective Investment Fund. In investing, there is no certainty of how much you are going to earn for the resources invested and, depending on the investment, you may not even earn an additional amount to what you invested. However, many financial instruments that promise to generate significant levels of returns make risk prudent in most cases.
Finally, it is important that once you know all the differences that exist between saving and investing, you evaluate how these financial options are included in your plans. Remember that saving has a lower return, does not involve any risk and is made for short-term goals. On the other hand, the investment gives you a higher return, involves risk and it is advisable to do it for long-term objectives.
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