To save, you have to spend less than you earn. The difference can be saved in a safe place for upcoming expenses, such as a wedding, the deposit on your first home and an emergency fund. Your savings need to be easily accessible, as savings are normally for goals you want to tick off the list in the next one to three years, or for unexpected expenses. Because of the shorter savings period, the savings growth will be lower compared with a long-term investment, but the growth will be stable and predictable.
A savings account is a great place to park your money for a while, but if you leave your savings there for too long, you might find that you can buy a lot less in the future due to the eroding effects of inflation. You need to invest to earn inflation-beating returns.
At some point, all of us want to stop working, or perhaps become our own boss. By investing, you are buying assets that can generate an income in the form of interest, dividends, rental income and profits. To earn an income, you invest in bonds, stocks, property or a business. The cost of higher long-term investment growth is short-term uncertainty, as economic conditions change and prices move up and down over the short term.
With a longer investment period, you earn higher returns, because of the power of compounding growth over time. Investing requires patience and tolerance, as your investment might be locked up for a long period as wait for the magical effects of compounding growth to increase your assets.