Every person needs to earn money no matter the city or country he stays in. But sometimes, managing this hard-earned money becomes challenging. Hence, it is essential for everyone to gain financial knowledge. 

Let's start from the basics.

There is a big difference between saving and investing. Understanding this difference is important. Now, what is the difference between Saving and Investing your money? If you simply put it, saving money is putting your money to rest. But when you invest, you are putting your money to work. Basically, you are putting your earned money into assets(bonds, equities, real estate, etc). This will result in the growth of your money.

Why people prefer Investing over Saving?

Saving and Investing both are different but they do have a common goal. They are both like strategies that help you earn more money. Both of them involve putting money away so it can grow over time, thus giving you profits.

While both have the same goal, i.e. earning more money, there is a major difference in the type of assets available in the two of them. When you talk about saving, you most likely think of savings accounts, certificates of deposit, etc. But investing is more of stocks, bonds, mutual funds, etc.

Now, the main question is why people prefer investing their money more rather than saving it. The main reason is inflation. In the past few years, inflation rose by a lot. And, the returns from the savings account are low. Because of this, inflation eats away all your profits. So technically, you are getting minimum or sometimes no profits. The returns are low but you earn more by investing(but there is no guarantee your money will grow).

In the above graph, we could see a tremendous increase in the inflation percentage in the past 3 years because of the Covid-19 Pandemic.

Is Investing Risky?

In simple words, it is. You are not guaranteed profits unless you take calculated risks. The main reason people prefer investing is because of the higher returns. Let's say you own a broadly diversified collection of stocks. In that case, you will be able to easily beat inflation over long periods of time and thus increasing your purchasing power.

A big drawback in investing is that your assets usually fluctuate and the value of your assets may decrease and you may lose money in the short term. However, studying thoroughly the assets that you buy and taking calculated risks will decrease your chances of incurring losses.

Also, investing is not for everyone. You will need to put the time and effort into learning all the necessary skills and improving yourself. Once you do this, investing will seem easier and you will tend to buy better and more calculated assets.

So, in conclusion, it is risky to invest only if you do not know what you are doing.

Should you Save or Invest...

According to all the rich people and big Investors, it is advisable you do both. You should save money for the emergency expenses that may come up suddenly as well as invest part of your earnings so that your money keeps growing steadily on the side.

Doing both together results in some of your money being safe in banks and savings accounts while part of your earnings is growing rapidly in various 'risky' assets such as stocks, real estate, bonds, etc.

If you wish to learn more about investing basics and how to understand the assets you are going to invest in, I have attached a website that I referred to below.

What Is Inflation? — www.investopedia.com

While it is easy to measure the price changes of individual products over time, human needs extend beyond one or two such products. Individuals need a big and diversified set of products for living a comfortable life.

If you want to know more about the difference and similarities in investing and saving, I have attached a website that deeply covers both topics.

Saving Vs. Investing: Key Differences & When to Choose | Bankrate — www.bankrate.com

While saving money and investing go hand in hand, you may be surprised at what has more impact on wealth. Bankrate can help you decide when to save your money and when to invest it.

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