Saving & Investment
Amit, a 26 something techie received a call from Sumit, a financial advisor regarding a new investment plan. Amit replied he did not see any need for saving & investment as he believed in living life to its fullest. Sumit understood that Amit needed some lessons on the concepts of Saving & Investment. He fixed up a meeting for a weekend morning. As expected, Sumit turned up and after introducing himself began explaining the following:
What is savings and investment?
In simple and general terms, savings is the surplus amount left from your income earned after deducting all the expenditures.
Hence, Savings = Income earned – expenditures incurred.
Investment, on the other hand, is done out of the savings made. This portion can either be invested in long term or short term investments avenues. Investments are intended to provide a cushion against future liabilities or otherwise. It can be for a child’s education, marriage, purchasing of a car, settlement of EMIs etc.
What is Investment?
The meaning of Investment is spending your time or energy on something anticipating income generation or value addition in the future.
For example: A farmer ploughs his field on a daily basis under the expectation that he may reap some returns in the form of grains after a specified period of time. This means that he invests his time and energy anticipating future benefits within a certain time frame.
Once you have read the aforesaid example, now you already know what an investment means, let us understand the term investment in terms of finance:
In finance, the meaning of investment is purchasing or creating an asset anticipating an interest income, rental income, dividend, profits or any combination of the mentioned returns. For example: I purchased 100 shares of a company anticipating a dividend from these shares. In this case, shares are my investment and I am anticipating dividend income from the investment made.