What is the difference between saving money and investing money? Many new investors often tend to mix up the two.
Saving is the simple act of putting aside money for future use. It is about controlling that impulse to buy a new phone and instead parking it aside in an emergency fund.
Investing money is all about putting that saved money to use, to try and make it work for you. It is your investments that compound and eventually pay you back through dividends, interest and rent.
Saving money is one of the foundational pillars of wealth creation. It is your savings that give you enough corpus to feed your investments. And therefore, saving money should always come before investing your money.
Many investors focus on chasing the highest return but, when starting out, your savings rate has far more impact on your portfolio. It is only after you have saved up sufficient capital that your rate of return becomes far more important.
The best way to increase your savings rate is to automate it and build a savings habit. Splitting up your income into savings and spending accounts can be very helpful in maintaining the discipline of putting a cap on your spending and on setting aside a certain amount of savings monthly.
Focus on increasing your savings rate and building a savings habit first. Then you can look into increasing the return on your investment.