Financial planning is something we all lay focus on, especially when we start earning decent figures and look forward to settling in our respective lives. The earlier you realize the importance of saving, the better it is because when you are old left with few years to retire, it may not be an ideal time to start saving. Remember that you are going to need more money in your sunset years when you will probably be living on a fixed income than you need now.
A lot of people get confused about investing and saving and confuse these terms to be almost the same. But this is not entirely true and you need to first understand these two terms before understand why they both are crucial for bringing in financial stability to an individual.
When you do not spend the entire income you earn, the money that you refrain from spending becomes your saving. There are various ways to save your money, some of which including putting the money in a bank fixed deposit, or simply parking the money in your bank’s savings account. People usually save so that they can use the money during an emergency or fulfill their monetary needs and desires.
Investing is nothing but putting the money that you save in a particular scheme with the hope of earning more money than your initial investment. There are traditional investment tools like PPF, EPF as well as non-traditional investment avenues like stocks and mutual funds. The main for anyone to invest is to score some profits from the money invested.
Why should you invest as well as save?
Before you go ahead and make any investment, you should make sure that you have enough money saved. Yes, saving is essential, then comes investing. Suppose you invested xyz amount from your savings in stocks or mutual funds and if the market collapses, leaving you with zero money, it is the money that you saved earlier which will help you in such times. Imagine if you invested all your savings and the market crashed, that would leave you totally bankrupt and helpless.
But saving a lot of money without investing is also fruitless. That’s because if you continue saving your money in a savings account, the annual interest you are earning on this is minuscule. Instead, if you took that same money and parked in a less volatile debt fund, you might receive an interest of up to 10 to 11 per cent. That is twice what you might have received by just parking your money in the savings account.
A monthly savings amount should be sufficient for you to get through all your recurring expenditures like payment of utility bills, grocery bills, house rent, etc. The rest of the money can be used for investing. A lot of people fear to invest in mutual funds because they fear that they will lose all their money. Remember, no investment is a risk-free investment and hence, if you are some risk tolerance and seek higher returns, you can consider investing in mutual funds.
Saving and investing both have their importance in an individual’s financial planning. You cannot emphasize one and ignore the other. If you only save and invest nothing, you might have a tough time beating inflation. On the contrary, if you invest everything then your entire savings are at stake, which again is not a pleasant sight. Hence, individuals should learn to balance these two smartly so that they can become financially stable. Remember that only when you learn to save, you will be able to invest and achieve your ultimate financial goal.