Saving and investing may appear to be the same thing, but there are stark differences between them.
Eunice Sibiya, manager of the consumer education program at First National Bank (FNB), notes, “In a nutshell, saving is the short-term practice of putting money away for a goal or unexpected expenses, and investing is the long-term strategy of putting money away and letting it grow. It is important to understand the difference between them, as they are two ways of making your money work for you to achieve different goals.”
Tip: Reach for your dreams. Start saving now.
Saving
Savings can be used to pay for a long-term goal or plan, such as a holiday or school fees, and they can help you avoid incurring debt.
“Every single South African with an income should be saving,” says Sibiya. Those who haven’t started usually use the excuse that they don’t have the money. However, in most of these cases, if they scrutinise their budget, they will find that they are spending money on unnecessary items and expenses, such as clothes or entertainment.”
You don’t need a lot of money to save regularly. Sibiya points out that putting away just R100 each month “will jump-start this critical step in your financial journey.”
Investing
Investing involves putting money away with the express intention that it will grow. Investing relates generally to a long-term goal, such as retirement.
While savings accounts also aim to achieve financial growth, with investing you are not assured of a set interest rate. “There are varying levels of risk, meaning that your money isn’t always fully guaranteed,” says FNB.
In light of these risks to your investment, the potential for growth or profit on your initial investment is higher.
“Investing may seem intimidating, with concepts like stocks, unit trusts or bonds. However, investing is not gambling, and is the next step after saving to make your money work for you,” says Sibiya.
However, before deciding on an investment, you should speak to a financial adviser, who will be able to assess your situation and assist you in making the best financial decisions.