3 Reasons Why Investing is Better Than Saving

Investing and saving are two very different things. They can mean the difference between total financial freedom versus having to work your entire life. A lot of people think that investing and saving is the same thing. They believe that if they put away a part of their income in the bank every month that will be enough to tide them over when they retire. However, saving is not the same as investing. Here are three reasons why investing is better than saving. 

First, investing your money wisely will result to financial freedom. There are two types of income: active income and passive income. Active income is the income you earn when you exchange time and effort for money. Passive income is the income you earn even without doing anything. Which type of income would you like to have? Investing your money wisely can result into passive income which will allow you to do whatever you want. Stated simply, money = freedom. On the other hand, money saved in the bank won’t give you passive income. If you want to increase your income you will have to find another way to augment it. 

Second, investing will give you a better return for your money. The only thing that saving and investing have in common is that you will be putting money in. The difference is that banks give only about 2-3% interest per year – 20% of which is taxed. You also have to take into account inflation. On the other hand, the average return for stocks is 18% per annum. For mutual funds, it is 10% per annum. Both figures are considerably bigger than what banks give.

Third, investing gives you leverage. According to Bo Sanchez, the greatest power in the world is the power of compounded interested. Once you invest in the stock market, you will be able to make use of this leverage. Compounded interest is when interest is added to the principal amount. In this way, the interest will also be able to earn interest. That will be on top of your principal. This is the power of compounding. Thus your money will create more money for you.

If you want to secure your future, investing is the best way to do so. We may be able to work 14 hours a day now. But there will come a time when we will no longer be able to do so. We won’t be young forever. The prudent thing to do is to prepare for our future as early as today. Putting a bit of money in the bank is ok. But we should invest most of our money wisely for our future. 

Kevin Preble resides in Phoenix Arizona where he is a student of life and his favorite hobby is learning about wine and the wine industry from the views of wine brokers. He enjoys road trips and traveling throughout the southwest and finding good wine pairings to serve with southwest cuisine. Kevin is interested in helping wine drinkers make educated decisions when they buy wine online.

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