The difference between saving and investing

To help South Africans grow their wealth, we have to do a 180-degree shift on how we think about spending, saving and investing. Reducing indebtedness and creating a savings culture in South Africa are major socio-economic challenges facing individuals, like you, and society as a whole. And we know this can be changed by adopting key behaviours like spending less than we earn, reducing debt, creating savings, investing in fixed assets like property and being insured in case of any emergencies.

Discovery Bank’s research shows that South Africans are slightly more optimistic than they should be about their financial health, and prioritise immediate gratification over more important long-term goals. This leads to insufficient savings and under-estimating the probability of unforeseen life events.

To make a positive impact on your future, it’s important to both save and invest. The difference between the two comes down to time, purpose, risk and liquidity (how easily you’re able to access your savings).

Saving

The purpose of saving is so you have money when you need it, whether for an emergency or to buy something specific. For example, a holiday, home repairs or even a deposit on a property.

The best way to save is to put money aside on a regular basis, as part of your monthly budget and this works best when you have the money automatically transferred into a savings account on the same date every month. And this money should be in an account that you can access whenever you need to.

You should also make sure your money is making a good return by earning as much interest as possible. You can boost your savings interest with Vitality Money, Discovery Bank’s behaviour-change programme. It helps you understand your financial health and how to improve it, and you’ll get rewarded along the way.

Saving money in the short-term is an extremely important part of being financially successful. It allows you to leave your long-term investments alone.

Investing

The purpose of investing is to build your wealth over a long time. This is money that you don’t touch for many, many years; it’s not for new car deposits, furniture or holidays. This is the money that will secure your financial future.

Long-term investments involve greater risk, but they also yield greater returns when the money is left untouched. This is where compound interest really works its magic. Compound interest is interest earned on an investment that’s then added to the original invested amount. Over time, that total amount earns interest again and gets bigger and bigger. The cycle continues until you withdraw your money.

If you start early and leave your money alone, you’ll eventually get to a point where your investments make more money than you’re contributing each month.

This article is not financial advice. Please consult with a financial adviser for financial advice.