So, what saving and investing mean to you? As a business oriented student, we should be able to understand and differentiate between both terms. So, asking yourself, what Saving means to you? In common word, Saving refers to not spending a substantial income or in another word, reduction of spending. While reducing the portion of income, we will save this income and accumulate the amount from time to time. As in personal finance, saving refers to allocating substantial amount from our overall income into low risk capital preservation investment product. These products include Saving Account, Checking Account, Fixed Deposit, and etc.
Versus Saving, Investing is a big word to many of us. Investment involve monies allocated from our income or Saving into higher risk of investment product that will grow and enhance the return of the allocated monies. Some categories of investment category involve Equity, Share, Unit Trust and etc. The vital objective of investment involve understanding the risk involve in the investment product to evaluate the possible income generated from these products.
Overall, the risk involved in Investment is higher as compared to Saving. Each investment product's return is co-related with the risk involved. In any common term, the higher the risk, the higher the reward of investment. Thus, it is important for any investor or saver to understand the consequences involved in making any decision to save or to invest in any investment product.
Some may even ask, if I save, so what will be the risk I face? All the while, I believe saving money in a Bank is the safest mean of safe-guarding our money? Well, this is the street man view but not really taking place in absolute (100%) manner. Banking institution is established for profit purposes. Well, for some baking, profit may not be the main aim but it is important that the Bank made sufficient return to sustain her operation while carrying out her day-to-day operation. Thus, profit is still an important topic involved.
Due to the profit element, Bank carry out risk taking operations by taking deposit and at the same time disbursing the collected monies as loan to any relevant parties with the agreed interest (profit margin). Most of the time, the approved loan are calculated risk but, in any substantial cases, there are risk involved. Thus, risking the monies owed to the depositor. This is considered risk to the saver or investor.
When the accumulated risk on the bank ballooned, the Bank may risk to collapsed and by then, our monies may not be recovered. This scenario is only a simplified version of a bank collapsing. In modern day, we are much protected in many countries thru the existence of Central Depository Insurance Agency in individual country and is set up mainly by the Central Bank or the Federal Government.
This agency is established to insured a substantial amount of monies deposited in any legal banking institution registered with the agency. Each country will have their own framework to run, thus it is important for us to understand our rights and benefits thru the agency.
For some who have doubt on Saving and Investing, it is time to clear up the air. Risk happen to be an important element in managing our monies in daily life. Risk appear to be a daily encountered as far as we are dealing with any element that bring value to life. To decide to save and to invest are important in altering the landscape of one Personal Finance. As we know, Personal Finance is a plan and tool to achieve our Personal Financial Goal. Decide the best and understand the risk of our decision.
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