Many Aussies hear the word ‘saving’ and mistake it for ‘investing’. While both have some similarities and they certainly go hand in hand, there are also a lot of differences.
In this post, your trusted financial consultant on the Gold Coast is going to cover the differences between saving and investing and how you can benefit from the latter:
What Is Saving?
Saving is putting money away to be used for a specific purpose at a future time. This could be for an emergency fund, for a holiday, for a business start-up, or for your retirement.
Saving comes from living below your means, which means keeping your expenses low so you can put the difference away for a rainy day and/or for a life milestone.
You should also be saving for ‘designated’ expenses like holidays, home renovations, business start-ups, home deposits, and retirement. These are your ‘designated’ saving accounts.
What Is Investing?
Investing is the process of putting money into something that has the potential to grow (the ‘return’). This could be for an income stream for the future, for your primary home, for your child’s education, or for retirement.
Why is there a difference between saving and investing? Usually, if you are investing, you are working towards a return that will most likely be higher than any interest rate that you would receive with a savings account.
For your emergency fund, you want to ensure you are putting money away in an account that is easily accessible and returns the least amount of interest. You also want to ensure that the money in your emergency fund account is not invested – you only want to put emergency money away, which means you will have instant access to it.
For everything else, you want to ensure that you are investing. This way, you are working towards a return that will most likely be higher than what you would receive if you were saving.
What Are the Benefits of Investing?
1. It Builds Wealth
Investing in something that will give you a higher return over time helps you build your wealth. If you invest today, you could be looking at a return in a few years or in decades.
2. Risk Is Lessened
Investing helps you grow your wealth while reducing the risk that you will lose the original amount of money you have put away.
3. It Allows You to Have Control Over Your Money
If you invest, you have control over your money as you can choose when to invest, how to invest, and where to invest.
4. It Allows You to Have a Better Lifestyle
By investing, you will be able to have enough money to have a better lifestyle than if you were to just save.
5. It Allows You to Reduce Your Income Tax
If you invest through a company, you can reduce your tax by claiming back some of your expenses, but you should speak to an accountant or financial planner if you want to know more about this.
Best Ways to Invest in Australia
There are many ways to invest in Australia, from exchange-traded funds to American Depository Receipts. ETFs may be the easiest way to invest in a diversified portfolio but if you are looking for other opportunities, you might want to consider these:
MSCI Australia Index Fund ETF
IQ Australia Small Cap AET
Australia Dividend Fund ETF
BHP Billiton Limited
Samson Oil and Gas Limited
If you are thinking about saving, it is important to know what you are saving for, what type of account you want to save in, and how you can save more.
For example, if you want to use the money in the future, it might be better to save the money in a high-interest rate account and set up a plan to move the money into an investment account with a higher return.
If you are thinking about investing, it is important to know that you can invest in anything from shares to a start-up to a renovation to an income stream for the future.
Investing helps you build your wealth and reduce the risk that you will lose the original amount of money you have put away. It also allows you to have control over your money so you can choose when to invest, how to invest, and where to invest.
If you are interested in saving or investing, it’s a good idea to seek the help of a seasoned financial consultant.
Swell Financial Planning can provide you with the services of a financial consultant on the Gold Coast. Get in touch with us today so we can set up an appointment!