Saving is the act of delaying immediate spending until you accumulate enough to spend on something more worthwhile in future.
We often speak about saving and investing as if they are the same thing, because when you invest you also delay spending to accumulate more for something worthwhile in the future.
However, it is more useful to think of savings as money you set aside for things you need to pay for in the near future or for financial emergencies in an emergency fund. Your savings should be for shorter-term goals or money you may need to access quickly.
Earning interest
Typically, you will save in a bank savings account or a money market account or fund.
You may earn interest on your savings, but the interest may not be enough to give you growth after inflation and tax. You trade off a lower after-inflation or real return, for the liquidity or ready access that money in a bank savings account can give you.
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CONSIDER THIS ... Returns over the past 93 years show that it would take 88 years to double your money if you invested in cash 10 years to double your money if you invested in equites (shares).
Source: Old Mutual Long Term Perspectives 2023 |
You will struggle to grow savings in a bank savings account, or in a money market fund, to provide for long-term goals like the education of a child or your retirement.
When you invest, however, you put your money in unit trust funds, shares, bonds or listed property with a view to growing your money with inflation-beating returns that can harness the power of compounding over longer periods.
You have to be willing to commit to your investments for a reasonable period of time, depending on how much investment risk you are taking.
Investment terms for funds that invest in shares are between five and 10 years, but there may be times when you need to wait longer to get good real returns.
Save or invest?
Should you save or invest? You need both. A bank savings 
account or money market fund is good for shorter-term goals, like saving to buy a new fridge at the end of the year, or to have readily accessible money in the event of an emergency.
Stokvels too are good for saving for short-term goals such as Christmas spending, but the stokvels that are making a big long-term difference to members’ lives are those that are investing contributions for growth.
You can save or invest for goals such as a holiday or a wedding, depending on how much time you have and how much risk you can take.
Long-term goals such as saving for retirement, or the tertiary education of your children, need investments and long-time horizons.
