Saving vs Investing: What’s The Difference

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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 / invest for your holiday (I believe it’s a conspiracy LOL but 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 hence where they end up financially.

Getting clear on the difference and understand 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 money is the process of putting fabulous, juicy cash aside and parking it in extremely safe, and liquid (meaning they can be sold or accessed in a very short amount of time, at most a few days) accounts.

This means, bank accounts (not your day to day transaction account), fixed deposits, CDs, money market accounts and even some in the old world paper form stuffed under a mattress.

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) and then instead of stashing it away, 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 and 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 of 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.

We’ve got to shift from the model of actively earning money through our own efforts that we then consume, and instead add in a step where we invest in and create assets that do the earning and growing in value, and then we consume the proceeds of those assets.

Investing is like going off to the market and buying a whole lot of seeds that you then plant. You plant a big fabulous garden to feed you down the road. Some of those 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 fruits to feed off at different times. The point being you now have trees and plants that will feed you over and over, instead of eating the seeds and having a full belly only once.

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

In the comments below, I’d love to know…

  • Are you savings and investing?

And I hope it’s a big juicy yes.

If not,

  • which is the pot you want to get started with first?

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 of those fun things with assets doing the work.

You must invest because assets create your freedom.

Thanks as always for reading, watching and sharing so generously and for choosing to master this key ingredient money and 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 that one step.

 

With huge love

Ann

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