Millionaires understand the differences between investing and saving, and when you understand these difference too, you could be joining the ranks of them.
When we were growing up, we were encouraged to stack our pennies in case of a rainy day, and if we wanted something we were taught to save for it.
These aren’t bad ideas, but most of us weren’t taught a thing about investing. Instead, we’ve likely been fed the notion that investing is for the folks that already have money, and that’s far from the truth.
When it comes to paying yourself by saving and investing, both have their unique places, and it’s important that you know when and how to work them.
Understanding Investing vs. Saving
What to Know About Investing:
- You invest for long term goals such as your children’s education, and retirement.
- There is risk involved – you may lose money, but you can also turn a significant profit.
- It’s harder to get your hands on the money that you have invested, and there may be fees
and taxes involved with withdrawing money from investments such as your 401k.
- If you won’t need to touch the money in 5 years, consider investing it.
When you invest, you expend money in order to gain a financial return.
There are so many types of investments. You can invest in real estate, stocks, bonds, 401ks, education, business, and lots of other possibilities. When you learn how money works in America, you will quickly realize that in order to become wealthy, you are going to have to make a financial investment in one way or another.
Let’s think about it in it’s simplest terms: When you start a business, you may purchase or invest in the equipment that you need to be successful. Even if the price of your equipment is a little steep, you know that it is worth it because in due time, as you business grows (even through its ups and downs), you can look forward to receiving a full return on your investment.
Whether you decide to invest your money in real estate or stock and bonds, it’s important to consult a financial professional to maximize your success and your profit. Working with a financial professional who understands the market can help ease any fears and concerns that you may have.
What to Know About Savings:
- You save towards short-term goals such as a vacation or an emergency fund.
- There is minimal risk involved.
- You can earn a return with interest, but it may be significantly less than what you can earn through investing
- Your money is easy and ready to access (this is why you may hear it referred to as liquid savings)
- If you know that you will need to touch the money sooner rather than later, then consider saving it.
When you save money, you set it aside for future use.
Our parents were on to something when they told us to save up for a rainy day and for the items that we wanted. But when it comes to wealth-building, investing wins. Learn more about balancing daily life with investment.
Here’s why: You can only save a portion of what you already earn, therefore simply saving money won’t make you more wealthy — you can not save more money than you make at a given time. But when you invest, you have the potential to turn a small amount of money to a large amount of money.
It is important to not to treat investments as a savings account by constantly withdrawing or borrowing from it — you can give your money away in taxes and fees without even realizing it.
It’s best to leave the money alone and let it grow. And you also shouldn’t treat your savings account as an investment and expect it to do more than it was intended to do.
When it comes to reaching your financial goals you have to know what method to use to obtain them. Every millionaire knows the difference between saving and investing, and when you learn how to take advantage of the two, you’ll be on your way to creating wealth for your future.
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