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How To Achieve Financial Security

Over a long period of time, saving has been a predominant way to achieve financial security however, recently investment has been regarded a better option.

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How To Achieve Financial Security
PHOTO/Courtesy: How To Achieve Financial Security.

Saving money involves allocating a certain amount of your income and storing it in a bank account. The money is easily accessible to you when need arises. It earns you interest over time depending on the interest rates in different banks.

It is often done for short term goals like saving up to buy a phone or setting aside money that could be of use to you in the wake of an emergency.

It is a low risk venture, the probability of losing your money is minimal. The interest rates received are however low. it`s main aim is capital preservation instead of generating significant returns.

One of the benefits of saving is liquidity. This means your money is readily available to you without any penalties or restrictions.

How To Achieve Financial Security.
PHOTO/Courtesy: Shutterstock/Christian Chan

It also helps you build an emergency fund. Regularly setting up aside money allows you to have some that will cushion you in case an emergency arises.

Saving money especially in bank accounts is safer. The chances of you losing your money are minimal when you deposit your money in an insured bank account.

In as much as saving has some benefits, it also has some disadvantages to it, losing out on inflation is a major con to it. Inflation reduces the purchasing power meaning the money that you had initially deposited in the bank can get you less compare to what it could previously get you.

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It also has lower returns on the deposit you made and might therefore not be of significant help during inflation.

Investing on the other hand is used by those who wish to grow their money over a period of time, contrary to what our parents told us while growing up, money does grow, just not on trees.

It is associated with risk taking but with the potential of yielding higher returns over a long period of time. It is best suited for those who wish to achieve their long term financial goals like having a retirement plan or building a house.

It however has no guarantee that whatever industry you choose to venture into will eventually yield results. You will have to assess the risk and do your due diligence on the said venture.

A major advantage of investing over saving is the potential to yield much higher returns compared to savings which have a lower interest rate, investments have a much higher return.

It is also beneficial to those who wish to achieve their long term financial goals. It gives you the ability to grow your wealth over a period of time through reinvestment and compounding.

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Investments however have a risk of loss especially those with the potential of yielding higher returns. You should therefore research carefully and invest in different industries to cushion yourself from great loss.

The fact that you have no guarantee on returns is another disadvantage of investing. Unlike savings which offer or guarantee returns on the deposited amount, investments rely on taking risks.

Both saving and investing play a vital role in becoming financially secure. Investing is best suited for achieving long term financial goals while saving allows you to meet your short term goals.

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