A pet bugbear of mine, is use of the word saving when investing would be the more appropriate word. Often I find it’s incorrect use is actually done by financial expects on online articles and TV programs.
So lets take a look at what I think the difference is and why it bugs me that it took me so long to figure it out.
When you save, the intention is that you accumulate a certain amount of money to spend – ether on a tangible item or experience. The goal is to get to that amount, then spend it – or have it in reserve for spending later as savings.
With investing, you want to use your money to make more money. It’s all about making your money work – 24/7 365 days a year. You have no intention of ever spending the capital.
The difference is huge. I was always a good saver – being careful with money was instilled in me at an early age – I started with a paper round at 12 and all through school had a least one job, but generally two. And I constantly saved. Even to this day – it seems “wrong” to go through a month without having putting a little aside.
But I saved – which means, at times, I spent much of my savings. Bicycles, sports gear and fishing gear when I was younger – holidays when I was older. I never wiped myself out and compared to most, always had a cushion. It also meant, bar some debt I had while running my business, I have never had any personal debt – never had a store card, personal loan, HP finance – not even a mortgage. So my savings did one huge thing, save me from paying interest.
But had I split this extra cash into savings and investments I would have done so much better. I wish I had done this at an early age. Image even a small amount compounding steadily from my first paper round 35 years ago to my last job a few years ago. 35 years to compound, to take part in bull runs. Basically just to amass.
So teach your kids the difference early on – don’t just stop at teaching them about the importance of saving. Split saving/ investing 75%/25%. Open a low fee stockbroking account or ETF account and get them to start. If that’s not possible, how out about a yearly stock picking competition between the family for a small prize?
Starting early would have changed my life – luckily though, I eventually did find out the difference. I have a few friends that are well over forty that still have not learn’t.