Saving and investing are often used interchangeably. They both require that you put away excess money to use later and are both integral for financial stability. While there may be similarities between savings and investments, they are significantly different and are used for different purposes.

Saving

Savings is when you put money away to use in the future. Savings may be put away in accounts with a low risk of losing value, little to no short-term variations and easily accessible. While savings are less risky than investment, they tend to have no or lower returns as risk is the price you pay for higher returns. Some common objectives of savings are:

·        An emergency fund. This is money that is put away in case of unforeseen circumstances such as an accident.

·        Large recurring expenses. Large recurring expense are expenses than occur often, however, it can’t come out of your regular salary. Changing your spectacles every two years may be an example of a large recurring expense.

·        Short term goals. This is a goal that you are striving to fulfil in the near future. A holiday or home improvements are two examples of short-term goals.

Most major banks and financial institutions have financial products that are low risk and give easy access to cash. These may be used as savings accounts and are often shariah compliant and beat inflation.

Investing

Investing is when you put your money into assets with the expectation of much higher returns than a savings account. However, investments tend to be more volatile, more risky and often less easily accessible. Investors are willing to take the risk and invest over much longer periods of time in expectation of being handsomely rewarded. Some common objectives of investing are:

·        Retirement. This is a common reason for investing. With proper planning and discipline, you could comfortably live off your investments once you retire.

·        Diversify income. An investor may not be satisfied with the one stream of income that their 9-5 job pays. Diversified income may lead to greater financial security or may allow you to afford greater luxuries than a 9-5 alone will allow.

·        Support your passion. Investments are a great way to support businesses or products you are passionate about while also potentially getting dividends in return.

Majority of investment funds and asset classes, such as equities, include both shari’ah compliant and non-compliant options.

Allah knows best.