Saving and investing, what's the difference?

For some people, saving and investing may appear to be the same thing. However, there are some stark differences between them, which may affect which one you use for different goals.
 
Eunice Sibiya, head of consumer education at First National Bank (FNB), noted: “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 saving and investing, as they are two ways of making your money work for you to achieve different goals.”
 
In other words, saving is when a person regularly puts a portion of their income into a low or no-risk account, where the money is guaranteed to earn a certain percentage of interest, and your original investment amount is safe and guaranteed.
 
Saving
 
“Every single South African with an income should be saving. 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,” highlighted Sibiya.
 
Savings can also be used to pay for a long term goal or plan, such as a holiday or school fees, meaning that you do not have to take on debt in order to cover these expenses.
 
You do not need a lot of money to save each month. Sibiya pointed out that just saving R100 each month “will jump start this critical step in your financial journey.”
 
Investing
 
Investing, however, is when people put money away with the express intention that it will grow. For an investment they may not be a specific goal as with savings, such as going on a holiday, with the main aim being to grow your money, with a long term goal in mind, such as retirement.
 
While savings accounts have a similar intention in mind, with investing you are not guaranteed an interest rate, “and there are varying levels of risk meaning that your money isn’t always fully guaranteed,” revealed 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, what you need to understand is that investing is not gambling and is the next step after saving to make your money work for you and provide additional income in the future,” said Sibiya.
 
However, before making the decision to invest, you should speak to a financial advisor who can look at your individual situation and assist you in making the best financial decisions for your circumstances.
 
For a beginner’s guide to investing, click here.
For more information on saving, click here.