Part 1 The Basics (continued)
What are the differences between saving and investing? Part 1
It is important to understand the similarities and differences between saving and investing your money. It is also important to be sure that you are doing both within your budget and your wealth building plan. Basically saving money is putting money aside on a regular basis. You spend less money than you earn and put the rest into the bank. You should have this be an automatic part of your monthly budget.
Your "savings" are usually put into the safest places or products that allow you access to your money at any time. Examples include:
Certificates of deposit or CDs.
At some banks and savings and loan associations your deposits may be insured by the Federal Deposit Insurance Corporation (FDIC). But there's a tradeoff for the security and ready availability of these savings methods: your money is paid a low wage as it works for you.
When you "invest," you have a greater chance of losing your money than when you "save." Unlike FDIC-insured deposits, the money you invest in securities, mutual funds, and other similar investments is not federally insured. You could lose your "principal," which is the amount you've invested. That's true even if you purchase your investments through a bank. But when you invest, you also have the opportunity to earn more money than when you save. There is a tradeoff between the higher risk of investing and the potential for greater rewards.