Are you one of those people who cannot resist the morning “Latte To-Go” on the way to work? Why not spoil yourself with it once a week, maybe for feeling special on Mondays? But at the same time, putting the coins from other days in your piggy bank to treat yourself to a weekend getaway months later? Sounds like a plan to us!
What about investing, you might ask. Check out the article below, and find out the difference between the two!
The difference between now and later
In a nutshell, we can think about the difference between saving and investing as the difference between now and later. They might have different purposes, but both deal with the money you don’t spend.
Have you ever needed that money from the “sock” really urgently?
Saving is the act of putting money away in a safe place, usually in a bank, with the intention of using it in the near future. The time horizon is usually relatively short – up to three years.
The main aim is to be able to tap into reserves in case of a rainy day or for unplanned purchases, as we have all had that piece of junk washing machine that broke down at the worst possible moment.
Since the goal of saving is preserving capital, it is very low-risk. But low risk also means low reward, meaning the return on money saved will be very low – in some cases, even lower than the rate of inflation, meaning you could end up with money worth less than when you started saving.
To paint a clearer picture, interest rates on deposits in the Eurozone will bring you a 0.4% return, while inflation is about 1.8%, meaning you are effectively losing your money’s worth by saving money in a bank. In a way, we could say inflation can “eat” your money in a bank much like mice can eat your hard-earned money hidden away in a sock.
- Morning latte: sure, that daily latte macchiato sounds nice, but do you really need it every single day?
- Entertainment: if you have monthly subscriptions to Netflix, Apple Music, and Spotify, maybe it’s time to consider letting one of them go;
- Shopping expenses: you can drive your car from store to store, or you could find one store that can cover all your needs; saves your gas expenses and your time;
- Lottery tickets: everyone dreams of becoming a millionaire someday, but the money we tend to spend dreaming could easily be put aside;
- Buying a car: yes, we know, that seat massage option sounds very nice, but what if you could put some of the extra cost aside, just in case? How about buying a used car, not a new one?
- New clothes: think of fun ways to combine your existing clothes instead of buying new ones that you will only wear once;
- Gym membership: we fully support you going to the gym, but in the spring and summer time, you can combine workouts, fresh air, and getting a little bit of vitamin D at a park near you.
What if you could just sit back and relax?
Investing, on the other hand, means letting your money work for you with the hope it will grow over time. This can mean buying bonds, stock, or you guessed it, crypto. If you can put money away for more than three years, we would advise you to consider putting it somewhere where its value can grow over time. In other words – invest.
Investing carries a greater level of risk than saving, so there’s no guarantee that you will get back the money you originally invested. However, greater risk also provides the opportunity for higher return, if what you invest in performs well. You can learn more about that in the article, Investing is a Marathon, not a Sprint.
In short, saving requires discipline (putting some money aside on a regular basis and not spending it on impulse purchases) while investing requires patience. Wanna hear the best thing about investing in crypto? At ICONOMI, you can start with as little as €10!