The Difference Between Saving and Investing
It’s easy to confuse saving with investing, but knowing the difference between the two can empower you to make a huge impact on your finances — and your financial future.
Out of all the financial steps to take, this is the most important one. The act of saving builds the foundation necessary for investing (which is a key step in creating true wealth — we’ll get to that in a minute).
Saving is simply the act of putting money aside on a regular basis — typically in the bank — to watch it grow over time, and is only possible by spending less than you earn. It’s safe, stable, and your money is accessible to you. This type of saving is perfect for short-term goals.
Saving is also mostly behavioral — it means paying attention on a daily basis to expenses. Do you know what you are actually spending each day? Each week? Each month?
A healthy savings plan includes the regular action tasks of:
- paying yourself first by immediately allotting a set amount into your savings account. You are the most important bill you will ever pay.
- tracking your everyday expenses — from that granola bar and bottle of water to online purchases to meals.
- making and following a budget — and sticking to it!
- reviewing bank statements and bills — you might be getting over or double charged and not even know it.
The goal of saving is to pinpoint an amount each month that you can funnel toward your dreams, your security and your financial health. Basically, savings can help you sleep better at night and afford the things and experiences you want in life.
Most professionals will recommend that you have a fully funded emergency fund (3-6 months of savings in cash) before you start investing. If a true emergency occurs (surgery, job loss, car repair), it is far better for you to dip into this pool of cash than slapping it on your credit card and creating debt that snowballs at an accelerated rate.
First You Save, Then You Invest
Investing is committing money to a product or activity with the expectation of getting more back than you put in. It carries more risk but potentially more reward
You have the option of investing in the market (think stocks, mutual funds, and Exchange Traded Funds, or ETFs), or other ventures. For instance, you may have a friend who wants to open a food truck and is looking to raise money. You have the opportunity to invest funds to help your friend get the business off the ground — as well as earn interest on those funds.
Investing doesn’t have to be intimidating. If you’re just starting out and feel like you could use some guidance, consider seeking financial advice from a reputable source to help you develop a plan that is in harmony with your current financial situation and your financial goals.
It’s important to keep in mind that investing is typically a long-term activity. Expect that the value may go up and down over time. And make sure you’re successfully saving money with the strategies we talked about earlier before you jump into the investment game. Your financial future is now in your very capable hands!
This material is for informational purposes only and is subject to change at any time due to market or economic conditions.
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USAA means United Services Automobile Association and its affiliates. Financial advice provided by USAA Financial Advisors, Inc. (FAI), a registered broker-dealer, USAA Investment Management Company (IMCO), a registered broker-dealer and investment adviser, and for insurance, USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # OE36312). Investment products and services offered by IMCO and FAI. Life insurance and annuities provided by USAA Life Insurance Co., San Antonio, TX, and in NY by USAA Life Insurance Co of New York, Highland falls, NY. Other life and health insurance from select companies offered through USAA Life General Agency, Inc. (known in CA (license #0782231) and in NY as USAA Health and Life Insurance Agency). Banking products offered by USAA Federal Savings Bank and USAA Savings Bank, both FDIC insured. Trust services provided by USAA Federal Savings Bank.
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