AseanOutlook.com – On the subject of financial planning, terms such as Saving and Investment often get thrown around loosely. First of all, let’s talk about what financial planning really is.
Financial planning is a principle to manage personal, household, and business finances to make them more effective and efficient.
This needs to be applied to achieve financial goals in the future. Financial planning is a dynamic process that specifically suits your live event.
Practically financial planning is an art that takes time and processes for a lifetime because no financial planning could change your financial condition overnight.
Saving and Investment for your Financial Freedom
Financial planning could help you to reach the ultimate goal: financial freedom. Financial freedom means you are free from debt.
You have an available flow of income from the investment you had made, and you to be financially protected from any risks that may occur. Instead of being controlled by your finances, you are the one who controls them.
You are free from being overly stressed for making life decisions because you are prepared for the financial impact.
Who doesn’t want that? Therefore, as a part of financial planning, saving and Investment is important for you to consider since they go hand in hand.
What Saving actually is?
Since we were a child, we were taught to save our money. It was started by putting it in our piggy bank, our used cookie can, or putting it under the pillow perhaps.
But what saving really is to set aside money for future expenses or needs. You want to have the cash available relatively quickly or maybe immediately even when you choose to save money.
If you want to have the money at the right time in the future, saving is the right act to do.
Pro and Cons of Saving
Saving has relatively really low risk, some even said there’s almost none if you choose a bank with a well-known reputation that guarantees the security of its customers’ funds. Low Risk, Low Return.
Profit of saving is relatively low. You could get the profit of 1-4% per month by depositing funds in your bank account, but still, the profit earned is relatively low.
Bank typically pays higher interest rates when there’s inflation. But, on the other hand, your saving may not grow fast enough to completely offset the inflation loss.
As it was stated before, the time horizon of saving is short. By learning the pro and cons of saving, you know the right move for your financial planning.
What Investment actually is
Investment is similar to saving, except you are putting your money and expecting to achieve a higher return in exchange for taking on more risk. An investor usually sets their financial goal for a long-term and bigger goal.
You should plan to keep your funds in the investment for at least three to five years if you are looking to invest money. That is why it is advised you only invest money that you won’t need especially in a year or two.
Pro and Cons of Investment
The risk level of investment is rather medium-high, although it depends on what, when, and where you’re investing your money is. There is always a possibility of losing some or all of your investment capital.
The time horizon of investment is generally long, 3-5 years or more. With the risk level and the time horizon, compared to saving, most people find the investment is difficult.
High risk, high return they said. The profit of investment is potentially higher and also investment has a higher potential to protect your money against inflation.
One thing you need to remember is investment is not gambling. It would help if you’re learning investment strategies before you put your money at the risk.
Generally, both have the same purpose
Yup, they’re both have the same common purpose for you: Helping you to accumulate money. What makes them so different are their goals specifically, risk-level, profit, liquidity, and protection against inflation.
So, “Which one is better?” you may ask. Both are important, but moreover, it is crucial for you to know when it’s best to save and when it’s best to invest.
By learning about Saving and Investment, it could have a big impact on your financial planning.