Most of us plan our finances with the objective of tax planning, throughout the year all salaried and non-salaried individuals look for and invest in schemes that are tax saving and might be beneficial with respect to long & short term both. For those who do not understand the intricacies of filing a return successfully, figuring out the ideal balance between saving, investment & expenses becomes a daunting task. If you are someone who is facing one such internal battle between saving & investing, and not able to decide which way to go, it is always a good idea to learn about a few key similarities and differences between them to kick-off the exercise.
Save first, spend later
In general, what an individual saves is what remains of their earnings, once you spend all that needs to be, for routine expenses and others. It is quite essential for the financial well-being of anyone and requires almost no prior planning as it requires no extra efforts. Most salaried employees have their income credited directly to their bank’s saving account, and taking out only what one needs for basic expenses might help in saving a decent amount every month.
Invest while you save
On the other hand what an individual invests keeping a specific plan or goal in mind; it requires conscious planning and is undertaken with the objective to build both short-term and long-term wealth. Nowadays, there are numerous options available to explore and utilize them in a systematic way over the course of an entire investment cycle, though most of the tax-payers follow a common practice, which is to think of tax-saving investments or loans right before filing for the income tax returns. In order to build a long term corpus, one must make sure that they inculcate a habit of saving and investing throughout the year to get the best results.
Making use of the Investment cycle
Once we have saved enough for the contingencies after spending what’s needed for the month or we can say the fixed expenses, then one can begin investing their money. Everyone might have their own definition of what it means to save and how much is enough, when it comes to savings. In simple words, saving enough translates to having enough liquid money to pay for the miscellaneous living expenses and an emergency corpus for a big event or a sudden calamity. Before getting into serious investments, one should do proper research and become comfortable with the knowledge they have gathered before making an investment.
Also it must be made sure that the investment planning is not above the board and it does not hamper the on-going financial obligations like a home loan or an auto-mobile loan. The value lies in the return earned from various sources, for example – the interest earned in a savings account is generally much less as compared to what is earned if the same amount is invested amount in other instruments like the Mutual Funds, Stocks or even Fixed-Deposits.
Assess risk position before investing
As it is in the basics of investing, each and every investment bears a certain amount of risk which should always be kept under consideration while planning an investment. Most common of all are the stocks, though they are considered a risky investment as they are dependent on market fluctuations, if an individual can bear a certain amount of risk, it can yield good returns. One must always remember to spread their risk while investing as investment products like the Mutual Funds are considered low risk and can help in diversifying your portfolio with ease. The reason behind the low risk exposure of Mutual Funds is that they are spread across different stocks so in case if one fails to perform, the others cushion the fall and cover the risk on your net returns.
Nowadays, saving and investment not only helps you grow your money over time, but it also allows you to earn a passive income in a troubled time. If you stay consistent, the interest earned on any investment can easily surpass the contribution you have made to a particular product. One should always make sure that under a long-term approach, investing requires a great amount of patience and efforts for building a huge corpus of wealth.