STEEM NIGERIA CONTEST: INVESTMENTS and SAVINGS by @davidjossy

Hi everyone. Big thanks to @samsuccess from the Steem Nigeria community for organizing about this contest.

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INTRODUCTION:

Saving and investing are commonly used synonymously, but there is a difference.

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Basically making a choice between either saving or investing will depend on your goal(s) and your risk tolerance.

MY PERSONAL DEFINITIONS OF SAVINGS AND INVESTMENT:

SAVINGS.

I see savings as keeping aside money you are not spending now. It’s money you want to be able to access quickly with little or no risk and is usually meant for emergencies or for a future purchase.

It can be done personally (which has no option of interest) or more commonly using financial institutions like Banks (who give interest) that offer a variety of saving options like Fixed Deposit (where you might be limited in withdrawing as much as you wish) and Savings account.

INVESTING

Unlike savings, investing is using your money(or capital) to purchase assets that you think has a good chance of increasing in value over time.

I understand this as sowing a seed (the capital) in order to get juicy succulent fruits (substantial financial gain) or like 'planting' money to get more 'money'.

These assets could be in form of stocks, bonds and mutual funds.

There are also non-financial investments like Real Estate, Collectables (includes coins, antiques and works of art), Gold, even Books and Education.

When investing, it is important to invest wisely as poor investment can have bad outcomes. Investing early is also advised so as to ensure a better return.

DIFFERENTIATING INVESTMENTS AND SAVINGS

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FACTOR 1: TIME-PERIOD

SAVINGS: Typically are for small financial objectives to be met in short periods of time, like within 3 years. For instance, saving to buy a new phone.

INVESTMENTS: Typically a long-term plan for bigger financial goals. For instance, planning your comfortable retired life which is due in few years time from now.

FACTOR 2: ACCESS TO MONEY

SAVINGS: You have all the access to your money in savings. You may withdraw a part of your savings or the whole amount as per your wish. So at any time in critical need of money savings can serve as handy cash.

INVESTMENT: In investing, access to your money depends on the kind of investments you make. Likelihood is high that it may not be easily accessible like savings

FACTOR 3: RISK

SAVINGS: It has little or no risk of loss of funds but also has minimal gains as they normally have low-interest rates compared to investments. While there is a higher risk factor with investments, they sometimes have high returns.

INVESTMENT: Investing has an element of risk that savings don’t have. With investments it's possible you could lose the money you invested.
There is also the possibility that the interest rate is not fixed and may change leading to loss.

FACTOR 4: RETURNS

SAVINGS: Interest in savings accounts is often much lower.

INVESTMENT: Investing gives your money the potential to grow faster than it could in savings.
Also if you are waiting for a long time on investments, your returns will compound - this means in addition to a higher rate of return on investments, your investment earnings (your profit) will also earn money over time.

MY EXPERIENCE

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Some years back, I was privileged over a span of 10months to have saved up a good amount of spare money to use. I was contemplating on whether to save this money in my bank account or to invest in the MMM scheme that was trending then or buy the bitcoin crypto I was hearing about.

Unfortunately, I chose to keep the money in my bank account and forget about it for some time.

I checked the account at the start of the Covid-19 Pandemic lockdown and would you believe that this money had shortened by roughly 5 percent? Because of the ridiculous bank charge that my bank takes.

I had a mind to buy Bitcoin at that point but still did not invest the money then because I was uncertain and did not want to take the risk.

Then came 2021, and bitcoin prices shot up to the heavens, and till today I am still mentally kicking myself for having missed my opportunity to invest.

This experience taught me about the factuality of investment and savings.

Saving in Nigerian Banks shortened my money by 5%, but if I had invested in bitcoin from the start, I would have made a profit of over 600%

In Conclusion,

I think that saving money most times should come before investing money. It can be reasoned as the bedrock upon which your financial plant is grown.
Because unless you hit a sudden jackpot or inherit a large amount of wealth, it is your savings that will provide you with the capital to start your investments.

Basically if you have long term goals, Invest. If you have short term goals, Save.

For long-term goals, I think an option is investing in its start and slowly switching to savings as your goal gets closer. This helps avoid a situation where there is a sudden drop in your investment worth that could then delay achieving your goal.

WHAT I PREFER TO INDULGE IN

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Personally after learning a bitter lesson from my experience I have become an inducted risk-taker, so I'd prefer investing over saving any potential startup capital I may have.

This is because investment, though more risky than savings, offers a higher chance of good returns and with the level of inflation being seen in the country one needs to aim for higher returns.

Thanks for reading through

I do hope you have a great day