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Money is a medium of exchange that we used in our daily life to obtain something that we need or the services that we require. If we fall sick, we have to pay for the medical expenses to obtain suitable medical expenses, hoping for better health. When we want to quench our thirst or satisfy our hunger, without money, we cannot even buy the ingredients needed. We lived in a world that utilizes money as one of the biggest necessity to survive.
It has been in most people’s thoughts about what do they want to do with the money that they have owned, save or invest it? Some of us do not even know what defines both of the terms and what kind of action is needed to accomplish both of them? Albeit the terms “saving” and “investing” are used interchangeably, it is very important to understand the differences and similarity between saving and investing and the importance of saving money.
First and foremost, let us take a look at the differences between the two terms.
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Saving and investing have a different level of risk. Saving is setting aside some of the money we owned by avoiding to spend them, except during emergencies or future purchase. People that prefer saving than investing usually thought that it is a great way to be able to withdraw the money that they have saved quickly and easily with the least amount of taxes. We do not have to worry about the risk of losing money as we will receive the exact amount of money that we have saved in our bank account.
According to Otto , “Saving behaviour is strongly dependent on how people mentally structure their finance and on their self-control attitude towards decision space restrictions, environmental cues, and contingency structures”. Thus, it is up to the owner of the account on how to use his or her savings, not decided by another party. The only risk that needed to be avoided by people who prefer this method is their worldly desire, which is to spend their money on unnecessary things. On the other hand, all investments involve taking risk. Investing is buying assets such as bonds, stocks, real estate or mutual fund with the expectation that our investment will make money for us. Investments usually are selected to achieve long-term goals by people who already have a great sum of money in their hand to be invested. Based on the U.S Securities and Exchange Commission investment strategies depend on how good the companies that we have invested, doing their job in the stock market. Investors have a high risk to lose their money if the rival companies are better than it is or the company’s products or services are not accepted by many clients. People who invested have to wait for a quite long time to see the progress of their investment whether it is beneficial or the opposite. In general, it is clear to us that saving has little or no risk of losing money than investing that holds an unpredictable outcome.
Another difference between saving and investing is both of them use different products and ways of accessing it. For saving purposes, people commonly create their savings account and certificates of deposit. For example, in Malaysia, most of the existing banks such as Maybank and Bank Islam do offer their customer to create savings account, which is a fundamental type of bank account that allows us to deposit money, keep it safe, and withdraw funds. Owner of the account might get the chance to get interest rates but it is relatively low, with the average account paying less than 1% annually. There are rare cases where some savings accounts offer higher interest rates than others. Furthermore, certificates of deposit are a secure form of time deposit, where money must stay in the bank for a certain length of time to earn a promised return. It is also called a “share certificate” at credit unions, which usually earns more interest than a regular savings account. Banks and credit unions pay extra for the right to hold a big sum of money for a period of months or years, known as the certificates of deposit. However, investment has a lot of categories to be chosen by people that are intrigued. Investment can be applied by bonds, stocks, mutual funds, real estates, and commodities such as gold or silver. Bonds are a type of investment that results in an investor lending money in exchange for interest payments. Bonds are one of the most vital investment especially for those who want to generate money using their portfolio. There are many different options of bonds including savings bonds, treasury bonds, commercial bonds, and municipal bonds. Investors should know to choose which is suitable for them based on their liking. Next, if an investor buys a stock, it means that he buys a piece of the company. If the company does well, the investor will get their interest payments. Thirdly, investing can be accomplished by a mutual fund, which function as a basket of stocks. Our money is pooled along with the money of other investors into a fund for a particular company. Investors then will earn some money if the company they invested do a great job in the stock market. Therefore, we can see from here that investing money has more products and ways of access compared to saving money.
Even though saving and investing are quite different in the aspects that have been mentioned above, both of them share one similarity. Both of these methods can help us to gain control over our unpredictable future, as stated in an article ‘Start saving early’ from The Star (2019). Money that we saved or invested can be use as our emergency cushion. How would we know that we might get involved in a bad accident? We might encounter a situation that forced us to pay sudden medical expenses. With more advances in medicine and public health, people are now living longer and need more money to get through a certain period. With the money that we prepared, we can avoid making a loan and for the worst case, trapped in a debt. It is possible that we suddenly face a loss of income. At that moment, we can only depend on the sum of money that we chose not to spend earlier. It is important to divide the income that we have into two groups, one is to pay for our necessities and another one is for our savings. In addition, we are planning and shaping our future when we set aside money for our retirement to take the place of the income we will no longer get from our job. The reason we have to this is to ensure that we are well prepared for any outcome when we leave the workforce. With sufficient money stored for us beforehand, we will most likely be able to live our dream lifestyle even during our retirement years, as well as promising us the peace of mind of a secure financial future. We will be prepared for the challenges that fall upon us financially by applying one of those to methods. Overall, saving and investing have the capabilities to secure our financial status in the coming years.
In conclusion, we have to make good research and decide whether saving or investing is suitable for us based on our financial situation. According to The Star, if we start saving for our future from a younger age, we will find that it becomes second nature. It will be easier to put aside some money for retirement. It helps to start with small amounts, especially for young adults who are just entering the workforce, so it is not as overwhelming. For those who want to continue their studies, saving money earlier will be a big help as the costs for private and public education are rising every year and it is getting tougher to meet these demands. Saving money may allow us to obtain a little bit of interests payment depending on how long and how much money we keep inside our account, without any risk of losing money. Savings account also allows us to access our money quickly by using ATM, online banking or manually from the respective bank. According to Otto investment strategies depend on how companies, in which investments are placed, are evaluated on factors such as honesty, prestige, innovation and power. When we invest, we have a greater chance of losing our money than when we save. We also have to be aware that the money we invested we typically are not federally insured. On the bright side, we also have the opportunity to earn more money compared to low interests of saving money. This is a task no one else will perform for us or push us to do. Hence, we should realize the importance of saving and investing that will make a great impact on our life, especially in the far future.
Saving and Investing: The Importance Of Saving Money. (2024, Feb 08). Retrieved from https://studymoose.com/saving-and-investing-the-importance-of-saving-money-essay
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