In the economic sense, financial stability is a state in which the financial system, i.e. the key financial markets and the financial institutional system, is resistant to economic shocks and capable of carrying out its basic functions: the intermediation of financial funds, risk management, and payment arrangement.
Being financially stable for a private individual entails not having to worry about paying bills or meeting obligations, it does not imply that you must be wealthy. However, it does imply that you are capable of managing your finances without incurring additional debt to cover further expenses. To put it simply, being financially stable means spending less than you earn or what is widely referred to as living below your means. A situation where you can pay for the necessities of life, such as food, shelter, and utilities, from the income of your assets.
In this article, we compare savings and investment and determine which is a better financial strategy for ensuring financial stability. The terms saving and investing are frequently used interchangeably, but there is a significant distinction between them. Many people believe that by keeping money in a savings account, they are already investing. It is critical to understand the distinction between the two and to avoid conflating the terms saving and investing. So, what exactly are savings and investment?
Saving is the act of putting money aside that you don’t want to spend right now, usually for an emergency or a future purchase. You want to be able to access your money quickly and with little or no risk.
Investing is the purchase of assets such as stocks, bonds, mutual funds, or real estate with the expectation of profit. Investments are typically chosen to achieve long-term objectives. In general, investments can be divided into two types: income investments and growth investments.
Nonetheless, it is up to you to decide whether saving or investing is the better option for achieving your financial objectives. However, from personal experience, investment is the best option for achieving financial stability, and here are some reasons why:
To begin, when it comes to savings, you may want to consider whether you can safely rely on reaching your goals within a specific time frame if you save the appropriate amount. However, if you look at it critically, you’ll have to save more money to achieve the same goal as opposed to earning higher returns through investments. Investing has the potential to provide higher returns than saving. You may not need to contribute as much money to achieve your objectives.
Another disadvantage of saving is inflation, which our current economic situation exemplifies. Money depreciates year after year, so the money you save will depreciate year after year. However, if you earn interest, it may offset some of the negative effects of inflation. Unfortunately, interest rates rarely keep pace with inflation. Saving also implies that you will need to set aside more money each month than you would if you received higher returns on your investments.
Investing, on the other hand, can be far more beneficial than saving. Investing allows your money to grow faster than it would in a savings account. Your returns will compound if you have a long time until you need to meet your goal. This means that, in addition to a higher rate of return on investment, your investment earnings will earn money over time. The advantage of higher compounding returns is that you won’t have to invest as much each month as you would have to save to reach your goal.
Saving typically results in a lower return but virtually no risk. Investing, on the other hand, allows you to earn a higher return while also exposing you to the risk of loss. In a country like Nigeria, risk-adjusted investments are a far better option.
You may be concerned about the high risk associated with investments, which is why Wavis Investment is now making investing simple and convenient. We provide financial advice and assist you in properly investing your money in real estate. Investing does not have to be difficult, and Wavis Investment has made it even easier. For more information, please visit our website: www.wavisinvestment.com.
Derin Phillips is a financial and investment manager, CEO of Wavis Investment Ltd and an astute business leader with over 10 years of professional experience in developing and implementing business growth strategies, engineering process optimization/operational effectiveness and championing healthy financial decision making.