What is Investment and Saving?
Investment and saving sound very similar to most people, but both are very different. Understanding the difference is key to financial growth.
Basic Understanding
Investment and saving sound very similar to most people, but both are very different. In simple words, saving means keeping aside a portion of your salary or the amount you manage to save from your current earnings.
But when we talk about investment, it is a powerful term in finance that can completely change how you plan for your future. Investment simply means making your money work for you, so its value does not stay constant or decrease — instead, it keeps increasing over time.
Saving vs Investment
There is a big difference between saving and investing.
- Saving means keeping your money aside and holding it with yourself.
- Investment, on the other hand, means your money works with you. Even if you are not working, your money is working in the market on your behalf, and its value grows day by day.
Let’s understand this with a real example
Samay is a software engineer, and his salary is ₹50,000. He knows about budgeting and follows the 50/30/20 rule.
What is the 50/30/20 Rule of Budgeting?
The 50/30/20 rule is a simple guideline to manage your after-tax income. It is divided into three parts:
50% for Needs
Samay's monthly salary is ₹50,000. According to this rule, he can spend 50%, which is ₹25,000, on his essential needs.
Examples of needs:
- Room rent
- Electricity and water bill
- Food
- Groceries
- Basic living expenses
These expenses fall under the 50% category.
30% for Wants
The remaining 30%, which is ₹15,000, can be spent on Samay’s lifestyle or personal choices.
Examples:
- Movies
- Outings
- Parties
- Vacations
- Shopping
These are not essential but fall under "wants."
20% Savings
The remaining 20%, which is ₹10,000, should be saved for future financial security.
Examples:
- Emergency fund
- Retirement planning
- Insurance
- Long-term saving goals
This is the recommended strategy according to budgeting experts.
Why Do We Need to Invest Instead of Only Saving?
According to financial experts, if a person only saves money, its value does not increase. In fact, its value decreases over time. But how? Let’s understand.
Does Your Money Hold the Same Value After 5 Years?
Every year, inflation increases by 4% to 6% on average.
For example: If you save ₹10,000 per month for 10 months, you will have ₹1,00,000.
But next year, due to inflation, the same thing that cost ₹1,00,000 may cost ₹1,04,000 to ₹1,06,000. The following year, inflation will apply again — this time on ₹1,04,000 or ₹1,06,000.
So, your savings lose value over time. This means saving alone cannot protect your money's real worth.
You Need to Invest
Now you understand why investment is important and why everyone should invest, not just save.
Here are some common investment options:
- Bank Fixed Deposit (FD)
- Plot or Real Estate Investment
- Gold Investment
- Share Market / Stocks