Many new investors don’t understand that saving money and investing money are entirely different things. They have different purposes and play different roles in your financial strategy and your balance sheet. Making sure you are clear on this fundamental concept before you begin your journey to building wealth and finding financial independence is vital because it can save you from a lot of heartache and stress. The goal of cash is not always to generate a return for you. Perhaps the best place to start would be to spell out the differences between saving and investing for you, defining both concepts.
What Does Saving Money Mean?
Saving money is the process of putting cold, hard cash aside and parking it in extremely safe, and liquid – meaning they can be sold or accessed in a very short amount of time, at most a few days; securities or accounts. Above all, cash reserves must be there when you reach for them; available to grab, take hold of, and deploy immediately with a minimal delay no matter what is happening around you. Many famous wealthy investors, as well as older investors who lived through the Great Depression, actually advocate keeping a lot of cash hidden on hand somewhere that only you know about even if it involves a major loss. It wasn’t widely reported at the time but during the 2008-2009 meltdown, some hedge fund managers were reportedly sending their spouses to get as much cash as they could out of ATMs because they believed the entire economy was going to collapse and there wouldn’t be any access to greenbacks for awhile. Only after capital preservation is accounted for do you worry about secondary considerations for the money you have parked in savings. Namely, keeping pace with inflation.
What Does Investing Money Mean?
Investing money is the process of using your money or capital, to buy an asset that you think has a good probability of generating a safe and acceptable rate of return over time, making you wealthier even if it means suffering volatility, perhaps even for years. True investments are backed by some sort of margin of safety, often in the form of assets or owner earnings. As you know, the best investments tend to be so-called productive assets such as stocks, bonds, and real estate.
SO SAVING MONEY ONE KIND OF EMERGENCY LOOK OUT & INVESTING MONEY IS A FINANCIAL FREEDOM.
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