For some of us, the idea of going on a vacation is to do something adventurous like trekking in the mountains or go for skydiving. While others like to be more in the chill zone by enjoying sunsets on the beach. As human beings, we are all different. We have different personality types. It is partly due to biological reasons, and the rest because of our conditioning. This difference holds true when it comes to money also. Some of us like to sail smoothly, and so we save our hard-earned money by putting it in instruments that are risk-free or just save in cash. Whereas, some are ambitious with their money, so they want to invest it in the hope of making more wealth. Which one are you ‐ the former or the latter?
Now, you may ask why it is necessary to pick sides. Well, all of us inherently want to be rich and make our future secure, don’t we? So, in order to be rich, you’ll have to make the lines between ‘Saving’ and ‘Investing’ extremely clear. You’ll have to know more about yourself in order to master the art of investing. So, in this blog, we have discussed in detail the difference between saving and investing, and also the attributes of a saver and investor to help you decipher which one you are.
Savings v/s Investing
By definition, savings is the amount left after spending. Let’s say you’re employed in an MNC with a salary of Rs. 30,000. Your monthly expenses amount to Rs. 20,000. So, the amount left after catering to monthly expenses is Savings, which in your case is Rs. 10,000 (30,000 ‐ 20,000). If you put this saved amount in a Savings Account or Bank deposits or hold in the form of cash ‐ it’ll be termed as Savings.
But since you had some long term goals which can only be fulfilled with a huge corpus, you decided to start a monthly SIP of Rs. 10000 in an equity mutual fund scheme. This is investing. Investing happens when the money you put your savings in an asset that helps you grow your money in value over the long term.
Now that you are familiar with what Saving and Investing are, it’s time to see what personality type you are. We have listed down the personality type of a saver and an investor. This will help you identify who you are.
What are the Key Personality Traits of a Saver?
Looks Forward to Fulfill Short Term Needs:
It is hard for a saver to cater to long term goals. Since long term goals require a huge sum of money, it gets difficult to fulfill them using saving instruments such as bank accounts that can’t beat inflation. Only short term goals like taking a vacation, buying a new gadget, etc. can be fulfilled by savings as they don’t require much capital. Such goals can be achieved by regularly setting aside a certain sum every month.
Wants Easy Access To Money:
Savers are people who keep liquidity as one of their top priorities. They prefer liquidity over things because they want to be prepared for any emergency. So that’s why you’ll find many people saving in the form of cash. Even saving money in a bank account is a highly liquid option in case of an emergency. Opting for a highly liquid option will help them tackle the emergency better.
Doesn’t Want to Take Any Risk:
Many people like to go for savings because of an innate behavioral bias that they have. For them, the fear of losing money is more dominant than the desire to earn it. That’s why you’ll find savers investing in instruments that assure them the safety of the principal amount that they’ve invested. So they go for instruments like bank deposits which ensure principal safety, and also give them the opportunity to earn interest.
Who Prefers Interest Income:
Savers tend to like interest income more as it is easy to understand. It is something that you’ll definitely get in spite of what the country’s economic situation is. All you have to do is just keep saving a certain amount every month and the interest will keep accumulating.
What are the Key Characteristics of an Investor?
Has Big and Long Term Goals in Mind:
Normally, investors are ambitious people. They think long term. They focus on making some sacrifices in the present so that their future long term goals can be achieved. Some of the common long term goals that investors have is financing children’s higher education, buying a house or retiring rich and early. In order to fulfill such goals, you need to invest in market-linked instruments like equity mutual funds that help you fetch good and inflation-adjusted returns. Simply following the saving routine won’t help you get there.
Has Enough Savings to Take Care of Emergencies:
Savings complements investing. The journey of an investor starts with savings. An investor is nothing but an evolved saver. So, if you feel you have enough money in your bank to take care of your emergencies, you’re ready to be an investor. This is because now with your emergency fund sorted, you feel comfortable stomaching more risk. Thus, you would go for risky instruments that’ll give you an opportunity to earn exceptional returns, which in turn will help you achieve your goals faster.
Is Up for Taking Risks:
Investors are normally people who are willing to take some risks to earn more than the average. People who earn and aspire for returns more than the average are the ones that understand inflation better. They know how inflation eats into the returns earned thereby diminishing it. In the long haul, the effect of inflation is huge and investors understand that. That’s why they go for investment products that have in the past beaten inflation by a great deal.
Has a Hunger for Profits:
An investor is someone who is always on the lookout. They
are profit seekers. They look for opportunities that can help them grow their wealth, even after knowing that pursuing such opportunities will mean taking high risk. That’s why you’ll see some investors investing in mutual funds when the markets are down so that they can get more units of the fund. There are some who keep a track of different sectors and invest in those sectors which they feel can grow their wealth exponentially. Some people also hold their mutual fund investments for a longer time in order to make profits at the right moment.
Bottom Line:
Even though savings and investing are two different concepts, they are not mutually exclusive. Savings complements investing. Saving is the starting point of investing. Logically, if you spend all your money, there is no money left for you to invest, right? So, you can only invest if you save. Once you’ve mobilized an adequate sum for meeting your emergencies, you’re all set to begin your journey as an investor. Thus, a good investor should have the attributes of a good saver also.
