Saving vs Investing: What’s The Difference

Saving is not the same as investing… and investing is not the same as saving! 

When I started my journey, I thought they were one and the same, but they are NOT. And understanding the difference is vital for your wealth. 

The financial industry regularly misuses these two words – “save for your retirement” and “invest for your holiday” (perhaps it’s a conspiracy… or perhaps it is just stupidity) – and in doing so they confuse people on their wealth journey, which can have disastrous effects on the choices they make and where they end up financially.

Getting clear on the differences and understanding the role of both saving and investing in your wealth plan and on your balance sheet is what this video is all about.

To create wealth and ensure your financial wellbeing you need to be INVESTING and SAVING!

So let’s understand the difference.

WHAT IS SAVING?

Saving is the process of putting fabulous, juicy cash aside and parking it in accounts that are extremely safe and liquid (meaning the money can be accessed in a very short amount of time, at most a few days).

This means: bank accounts (but not your day-to-day transaction account), fixed deposits, CDs, money market accounts… and even old-world paper money stuffed under a mattress!

The purpose of saving is to set aside money now
with the intention of spending it later. 

Above all, cash reserves must be there when you reach for them – available to grab, get hold of, and use immediately with minimal delay no matter what is happening around you.

• Savings are for bigger expenses coming down the road. 
• Savings are to build up your emergency fund and your cash safety net.
• Savings are also there to enable you to respond to opportunities and risks.
• Saving has a super important role in your financial wellbeing and it’s very important to remember…

WHAT IS INVESTING?

Investing means you keep some of the money that comes into your life (like you do with saving) but instead of stashing it away to spend, you use that money to secure, own or control assets which work for you and build your wealth (by earning income, growing in value or both).

So money comes in, you keep that money, it doesn't get spent or “saved,” it gets allocated to investing and gets put to work in the form of some kind of asset. 

Unlike saving, your investment money never gets consumed. 

❝ Whoooo Ann! What do you mean,
my investing money never gets consumed? ❞

❝ If the investing is about feeding off and creating my
financial freedom, surely I spend it at some time in the future? ❞  

No! You don’t.  That's what's so exciting and cool about assets. 

In order to really understand this, we need to understand what financial freedom is. 

Financial freedom is when you've got a pile of assets which grow in value and earn income, and you feed off the proceeds, the fruit, of these assets – not the asset itself.

Yes, in some cases you will sell some assets as part of tax efficient drawdown and so forth, but let’s stick with the high level principle.

You are financially free when the income and capital
growth on your assets can pay for your chosen lifestyle. 

We've got to shift from the model of actively earning money through our own efforts (getting paid for labour) and then consuming that money, to a model where some money is invested in and creates assets that do the earning (and grow in value), allowing you to consume the proceeds of those assets.

Investing is like going off to the market and buying a whole range of seeds that you plant. You plant a big fabulous garden to feed you. Some of the seeds will grow into fruit trees. Some will grow into different veggies. You let the plants grow. All of these will grow at different rates. Once they've grown they will give you different produce to feed off at different times. And the point is that you don’t eat the seeds! You sow the seeds to get trees and plants that will feed you over and over.

So there you have it, a really important distinction – the difference between saving and investing. 

Here's a hint…

...you must be contributing to your investment pot before any other expense – because you want to be living a big, juicy life doing all the fun stuff with assets doing the work. 

You must invest because assets create your freedom.
If you're only saving and spending, you're never going
to create freedom. 

Thanks as always for reading, watching and sharing so generously and for choosing to master this key ingredient – money! – so you can live your juiciest life.

Remember, your freedom is created just one step at a time and that's all you need to do. Keep taking each single step.

Speaking about single steps, here is a quick and easy step to get you on the road to freedom.

Join me on my FREE Masterclass where I will teach you how to become a Savvy Investor, I will equip you the tools you need to create your freedom, and you'll learn about low cost, low input investments. Go here to secure your spot.

With huge love,

Ann

P.s continue the wealthy conversation on the Facebook Community Page (it’s free to join) and see what others are saying.

Let us all know, are you saving and investing? 

And I hope it's a big juicy yes. 

If not, which pot do you want to get started with first?