{"id":401,"date":"2012-04-08T22:38:34","date_gmt":"2012-04-08T22:38:34","guid":{"rendered":"https:\/\/eagleoneresources.com\/?p=401"},"modified":"2012-04-08T22:38:34","modified_gmt":"2012-04-08T22:38:34","slug":"saving-vs-investment","status":"publish","type":"post","link":"https:\/\/eagleoneresources.com\/?p=401","title":{"rendered":"Saving vs Investment"},"content":{"rendered":"
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In all of the financial counseling sessions I’ve conducted; and, in all of the personal finances classes I’ve taught, the subject of saving inevitably comes up.\u00a0 While discussing the importance of “saving for a rainy day”, one class participant asked me to explain the difference between saving<\/em> and investing<\/em> for the future.<\/p>\n

Both involve deferred consumption … not spending money today so that it is available for use at some unspecified time in the future.\u00a0 So, what does<\/span> differentiate one from the other?\u00a0 I believe that the distinction is found in two things … where the money is kept and the amount of time that is expected to elapse before the money will be used.<\/p>\n

Saving<\/span><\/strong><\/p>\n

Let’s talk about time<\/em> as it relates to where we keep our money.\u00a0 Saving usually implies that the money will be needed in a relatively short period of time; for example, saving money for a new refrigerator or for a new set of tires for the car.\u00a0 Both examples imply that the money will be needed relatively soon, possibly within the next year or so.\u00a0 Since the money will be needed soon, it must be kept where it can be accessed quickly and easily; it must be a liquid asset.\u00a0 Since it will be needed soon, the saver cannot take risks that might lead to less money being available than will be needed; the asset cannot be subject to possible depreciation.\u00a0 For these reasons, some assets are far more suitable for savings than other assets.<\/p>\n

Cash is certainly an asset that can be kept in a variety of locations.\u00a0 It can be kept in grandma’s old sugar bowl or under the mattress.\u00a0 Unfortunately, these carry the risk that the funds may be stolen since neither location is secure; and, sadly, there is no way these funds can grow since they earn no interest.<\/p>\n

Suitable places to keep savings include savings accounts, money market funds, and certificates of deposit (CD’s) at their local bank or credit union.\u00a0 All three are low risk; i.e., the value of the account cannot go down.\u00a0 All three pay interest with CD’s paying a somewhat higher interest rate in return for the depositor’s promise to leave the money untouched for a specific period of time.\u00a0 All three are designed for the short-term<\/em> storage of money.\u00a0 This is why they are good for saving.<\/p>\n

Investing<\/span><\/strong><\/p>\n

Investing, by its nature, carries risk … the chance that the value of the asset might decrease … risk that there may not be enough money when it is needed.\u00a0 There are many kinds of risk which will be discussed in another article.\u00a0 For now, suffice it to say that the risk of loss makes many investments unsuitable for short-term financial needs.<\/p>\n

Investments such as stocks, bonds, mutual funds, real estate, and real estate investment trusts (aka REIT’s) are much better suited to long-term financial goals.<\/p>\n","protected":false},"excerpt":{"rendered":"

In all of the financial counseling sessions I’ve conducted; and, in all of the personal finances classes I’ve taught, the subject of saving inevitably comes up.\u00a0 While discussing the importance of “saving for a rainy day”, one class participant asked me to explain the difference between saving and investing for the future. Both involve deferred […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_s2mail":"","footnotes":""},"categories":[44,61,13,35,39,23,38],"tags":[15,14,25,22,28],"class_list":["post-401","post","type-post","status-publish","format-standard","hentry","category-financial-planning","category-investing","category-money-management","category-personal-finances-2","category-saving-money-personal-finances-2","category-saving-money","category-savings-acounts","tag-finance","tag-money","tag-money-management-2","tag-money-safety","tag-personal-finances"],"_links":{"self":[{"href":"https:\/\/eagleoneresources.com\/index.php?rest_route=\/wp\/v2\/posts\/401","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/eagleoneresources.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/eagleoneresources.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/eagleoneresources.com\/index.php?rest_route=\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/eagleoneresources.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=401"}],"version-history":[{"count":1,"href":"https:\/\/eagleoneresources.com\/index.php?rest_route=\/wp\/v2\/posts\/401\/revisions"}],"predecessor-version":[{"id":402,"href":"https:\/\/eagleoneresources.com\/index.php?rest_route=\/wp\/v2\/posts\/401\/revisions\/402"}],"wp:attachment":[{"href":"https:\/\/eagleoneresources.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=401"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/eagleoneresources.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=401"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/eagleoneresources.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=401"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}