Dif­fer­ences be­tween Sav­ings and In­vest­ments?

Zambian Business Times - - FINANCIAL MARKETS - By Lun­gowe Kongwa Chi­tah

MANY new in­vestors don't un­der­stand that sav­ing money and in­vest­ing money are two dif­fer­ent things to­tally. They have dif­fer­ent pur­poses, and play dif­fer­ent roles, in your fi­nan­cial strat­egy and your bal­ance sheet.

What is Sav­ing Money?

Sav­ing money is the process of put­ting cold, hard cash aside and park­ing it in ex­tremely safe, and liq­uid se­cu­ri­ties. This means that the money can be ac­cessed in a very short time space or the se­cu­ri­ties can be sold quickly to raise the cash re­quire­ment. Sav­ings ex­tends to hav­ing a sav­ings ac­count with your bank.

In the end, sav­ing money comes down to sim­ple math. It re­ally is as fun­da­men­tal as 2+2=4.

What is In­vest­ing Money?

In­vest­ing money is the process of us­ing your money, or cap­i­tal, to buy as­sets that you think have a good prob­a­bil­ity of gen­er­at­ing a safe rate of re­turn over the pe­riod of time you hold the as­set. This as­set tends to make you wealth­ier even if it means suf­fer­ing volatil­ity, per­haps even for years. Such as­sets in­clude bonds, stocks, real es­tate etc.

In­vest­ments use a con­cept known as com­pound­ing. Com­pound­ing is the process of gen­er­at­ing more re­turn on an as­set's rein­vested earn­ings. i.e. in­ter­est earn­ing more in­ter­est. To work, com­pound­ing re­quires two things: the rein­vest­ment of earn­ings ( in­ter­est) and time. Com­pound in­ter­est can help your ini­tial in­vest­ment grow ex­po­nen­tially. For younger in­vestors, it is the great­est in­vest­ing tool pos­si­ble, and the num­ber one ar­gu­ment for start­ing as early as pos­si­ble. How Much Should I Save Ver­sus How Much Should I In­vest?

Sav­ing money should al­most al­ways come be­fore in­vest­ing money. Think of it as the foun­da­tion upon which your fi­nan­cial house is built.

The rea­son is sim­ple. Un­less you in­herit a large amount of wealth, it is your sav­ings that will pro­vide you with the cap­i­tal to feed your in­vest­ments.

As a gen­eral rule, your sav­ings should be suf­fi­cient to cover all of your per­sonal ex­penses, in­clud­ing your loan re­pay­ments, in­surance costs, util­ity bills, food, and cloth­ing ex­penses for at least six months. That way, if you lose your job, you’ll be able to have suf­fi­cient time to ad­just your life with­out the ex­treme pres­sure that comes from liv­ing pay­check to pay­check.

Any spe­cific pur­pose in your life ( goals such as re­tire­ment, ed­u­ca­tion, pur­chas­ing land/house or pur­chas­ing a car) that will re­quire a sig­nif­i­cant amount of cash in more than 6 months should be in­vest­ment-driven. A gen­eral rule is that you should in­vest ap­prox­i­mately 15% of your in­come.

Once you have these in place, we would sug­gest you look at health in­surance and life in­surance. This is re­ally vi­tal in any fi­nan­cial plan you work on.

Con­tact #Al­tusCap­i­tal on +260 211 257228 or +260 966 725 238 for help in se­cur­ing your fi­nan­cial fu­ture.

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