Saving and investing: What you need to know
People do not always understand the difference between saving and investing and the two are sometimes confused.
However, understanding and putting both concepts into practice will go a long way in ensuring your future financial well-being.
“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,” said Eunice Sibiya, from FNB.
She added it is important to understand the difference between saving and investing, as they are two different ways of making your money work for you.
Savings is regularly putting away part of your income into a low or no-risk account, meaning that your money is guaranteed to earn a specific amount of interest and the original deposit is safe.
Regular deposits gradually build up, and this money can be used at a later stage. Savings is vital as building up reserves is an effective way to ensure that you are financially secure when you are hit with unexpected expenses such as a medical emergency or a car breakdown.
It is also a way of paying large expenses such as holidays or school fees without taking on debt.
“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.”
Another myth is that you need lots of money to save, putting away just R100 a month will jump start this critical step in your financial journey.
Investing is when you commit money for the long-term and let it grow. It is different to savings as there is no set or guaranteed interest rate, and there are varying levels of risk meaning that your money isn’t always fully guaranteed. However the potential for profit or more aggressive growth is much 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 to provide additional income in the future,” explains Sibya.
If you are just starting out, opt for something that is not too daunting. There are multiple options available to save or invest with most financial institutions.
