Wednesday, January 10, 2007

Saving vs Investing

Saving and investment are 2 different things. Saving is putting aside some money to meet a short-term goal. The main characteristic of savings is that there is no capital loss as the money is placed in low risk vehicles, such as the savings account. But at the same time, there will also be little or even no capital gains in savings. Historically, savings have always failed to outpace inflation. Investing, on the other hand, is taking a measured amount of risk by putting your money in vehicles where you will get a higher return over a period of time. A very important benefit of investing is that the returns have always outpaced inflation.

Although saving money comes first and can therefore be considered more critical, it is not enough. Saving money will only allow you to live comfortably as long as you are working and have some regular income coming in. However, it will not maintain that lifestyle, not for a long time anyway, after that source of income is gone.

Financial independence and financial freedom can only be achieved through investing the money you have saved. Invested wisely, the assets have the potential of churning out more money than your current income. When that point is reached, you do not have to work ever again. Of course, you can choose to work if you want to. But wouldn’t it be out of this world to have that choice?

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