Did you know that compound interest is the most powerful force in personal finance? But how does a newbie harness this incredible potential?
Investing at an early age is the key. The world of investing is filled with terms, concepts, and more that a newbie may find difficult to understand, but no worries, we’ll help break everything into pieces you can chew at once.
In this article, you’ll learn more about investing and investments, savings, how variables like simple interest rate, compound interest and more play vital roles in investing. How about we take it from the very start?
What Is Investing?
According to the definition presented by the business dictionary, investing is a process of committing money, properties, and other resources (in cash or in kind) for future income.
It has been defined by business authors in different author in different ways, but still retaining the main idea of reaping a future reward.
Investment is defined as the commitment of current financial resources in order to achieve higher gains in the future. It deals with what is called uncertainty domains.
From that definition, the importance of time and future arises as they are two important elements in investment.
Hence, the information that may help shape up a vision about the levels of certainty in the status of investment in the future is significant.
As you’ll come to realize in our subsequent investing article series, the two main classes of investment are
(1) Fixed income investment such as bonds, fixed deposits, preference shares, and
(2) Variable income investment such as business ownership (equities), or property ownership.
What Is Saving?
Almost everywhere, investment and saving are most times used interchangeably, but from an economic standpoint, investment and saving are different.
Saving is known as the total earnings that are not spent on consumption, whether invested to achieve higher returns or not.
Consumption is defined as one’s total expenditure on goods and services that are used to satisfy his needs during a particular period.
The values of investment or saving, as well as consumption, can be determined at the macroeconomic level, or at the individual level, through different statistical methods.
In this info-graphic by Wealth 101, we clarify the difference between saving and investing, and give some basic tips on how to get started in the market.
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