Some people think of saving and investing as the same thing. That’s a big mistake. There’s a clear, vast difference between saving and investing, and knowing the difference may spell the difference between a comfortable and a troublesome financial life.
Simply put, saving is the manner of PRESERVING your wealth. Investing, on the other hand, is the manner of GROWING your wealth. It is important to both save and invest if you want to grow your wealth — simply doing only one of the two will put you in dire financial straits down the line.
When it comes to assets, we can loosely divide them into four categories:
#1 – Property, such as homes, works of art, etc. Property can have great value and be worth a lot of money when liquidated. But they’re not considered an investment. Why? Simply because you continue to use them while you’re alive.
#2 – Active investments are investments in which you take an active role in growing, such as the businesses you own and control. They’re called “active” because once you leave them alone, they’ll begin to dissolve and give you smaller returns.
#3 – Passive investments are investments that work on their own, such as stocks, bonds, and gold. When dealing with passive investments, it’s a good idea to diversify — meaning you should put your investments in many different places. Don’t risk putting all your eggs in one basket, so to speak.
#4 – Finally, there are your savings, which is your wealth that you store away. These are the things you’d like to keep to yourself — the bits of wealth you’d like easy access to.
It is good to have all these four categories covered when as you save and invest. They form the foundation of your financial life. If you truly want a build your wealth and provide for your family, you’ll do well to take the time to learn more about investing.