Relying entirely on savings is not a wise move nowadays. In today’s world, savings do not promise security for us, whether stored in a bank or iron safes at home. This is due to 2 main reasons, namely, the idle savings will lose the opportunity to reap more money and it does not help at all to overcome inflation. So, one way that can be done is by investing. Yes, investment. When you invest, you will make your money work for you, and remember, every saver can afford to be an investor!
“Save to invest, don’t save to save. The only reason to save money is to invest it.” - Grant Cardone
The difference between savings and investments.
As you read this blog, some of you may still be wondering what the difference is between investment and savings. You can experience this confusion because there are also some forms of investment that have concepts such as savings. For example, fixed deposit investments. However, there is a slight difference between savings and investments. The first difference is that when you save, you will be using a traditional bank account or any place that feels safe such as iron safes. But with investing, you will use that money to buy investment products or put them in any particular investment account.
The second difference is that if you save, you have missed the opportunity to further grow that money but investing, it will indirectly help you to overcome market instability as well as ensure the purchasing power of your money remains strong. This next difference is related to the period involved. Through savings, it is usually for the short or medium term but with the investment, it is for the long term. For example, investing for retirement.
Therefore, the simple rule that investors often use is that the longer the investment period, the more money is generated. So, no matter how old you are now it is never too late if you want to start making any investments for the sake of your future. So, let's read about how this investment can help you as well as the economy.
How investment can help the economy.
Not many people talk about this but investment has to do with the economy. Economic stability will influence the investors on whether they want to invest or not, as well as what investments they should make. Remember, investing in this context is not just a financial investment in a bank alone. It covers various other types of investments that are specifically related to the economy. Examples are capital expenditures that include the purchase of new items such as machines, building larger factories, buying robots to perform automation activities, etc.
Such an increase in investment should be a stimulus to economic establishments. This is because investment affects the rate of economic growth as it is a component of aggregate demand (AD) and more importantly affects the productive capacity of the economy. If there is an increase in investment it will indirectly help increase AD and economic growth in the short term. If there is spare capacity, then investment and AD will also increase, this is what will help economic growth. However, if the economy is close to full capacity, the increase in AD at that time will be inflation.
Although the above context refers to the increase in investment as related to economic growth, the context also wants to talk about how economic growth also affects the level of investment. Investment in the business industry is highly volatile. So, if businessmen see an improvement in the economic forecast, they will also increase investment to meet future demand. And the opposite will happen if there is an economic recession and the rate of economic growth declines then the amount of investment will also decrease. This also refers to the accelerator theory.
Accelerator theory is an economic postulation in which investment spending increases when either demand or income increases. This theory also suggests that when there is an excess of demand, companies can reduce demand by raising prices or increasing investment to meet demand levels. However, the increase in the rate of economic growth is not one of the main factors to the increase in investment. Increased investment is also due to several other factors such as interest rates, business confidence, technological advances, and government regulations.
How investing can help us.
Making investments is one of the ways used by many successful figures as a way for them to increase their wealth. And that’s the key fact why so many people make this investment. If you don’t make any investments no matter simple or complicated investments, you have indeed missed an opportunity to increase your financial value. Of course, there are risks in any investment however by making a wise investment, you will be able and potential to earn higher money than if you had never invested. These are among the 3 reasons why investing will be able to help us.
#1. Help to generate more income.
This is one of the main reasons why many people choose to invest. Investing is the only way to make our money work for us. So, all individuals have their options to choose from and find the types of investments that suit their financial goals. In this situation, many investors choose to use their investment returns as a source of income for daily use or any special occasion such as a wedding. Some also choose to continue to grow their finances by reinvesting the money. This again is the choice of the investors but what is certain is doing this investment will give us extra income.
#2. Healthy long-term returns.
While investing is a way to make sure money works for us, keep in mind most of the types of investments available are for long-term investments. In the context of long-term investment, this refers to investments for 5 years and above. Investors who hope to get a return on investment in the short term are still able to earn a certain amount of return but the amount will not be as much as expected. This is because the rules are simple, the longer you invest the more returns you will get. Yet it still refers to the types of investments chosen because in investments there are different asset classes in terms of risk, investment period, interest, etc.
#3. Overcoming inflation.
Inflation is the decrease in the purchasing power of a particular currency over time. It occurs when a decline in purchasing power occurs can be reflected in an increase in the average price level of a selected group of goods and services in the economy over some time. Simply put inflation is a problem of continuous increase in the cost of living over time and will indirectly disrupt financial well-being. Therefore, making investments will be able to help to overcome this inflation. The simple way is to generate positive 'real' returns in the long run. Investment in assets can provide high-income returns and even it can have the potential for capital growth.
Investing is a form of way to help us in particular to earn more income. However, investment not only helps oneself but also helps the economy whether it is the economy in one's own country or the entire world economy. Although the way or type of investment that will help the economy is in another context, it is known that many will still help the economy to continue to grow. Investment and the economy are very closely linked and one will be affected if one of them is affected as well. If you want to talk about the advantages of investing in yourself, you need a long list because investing is very helpful and gives an advantage to investors. But it depends on the risk appetite of the investors as well as the benefits of the chosen investment.