After working in a commercial bank for a little over a decade I have come to realise that saving is not the only path on the journey to building wealth and gaining financial independence.

The truth is, at some point in our lives we come to a point where we have some decisions to make about our financial future. As children, we are taught how to not only work for money but also how to save money. Many of us opened our first bank accounts while in basic or prep school, receiving little ceramic piggy banks in which we would put portions of our lunch money for future endeavours.

But what happens when those future endeavours are no longer popsicles or action figures and now become very adult responsibilities such as purchasing a home, retirement or a child’s college tuition? When is saving no longer enough and investment needs to come into play?

It is important to understand firstly that saving and investing are two related but independent processes that are not to be confused. Saving, by definition, involves the protection or preservation of money from loss. In other words, it is putting cold, hard cash aside and leaving it in its most liquid form in an extremely safe security or account.

This includes a savings or chequing account or certificate of deposit; the primary goal being capital preservation with a secondary goal of keeping pace with inflation where possible.

Investing, on the other hand, is the process of using capital to buy an asset which will generate a safe and acceptable return over time, making you wealthier with each passing year. It is a long-term commitment of putting money away to let it grow.

This involves risk, such as occasional and inevitable ups and downs of the market. However, over the long term the movements should smooth out into an overall upward growth pattern. An investment can include anything from a small business to rare antiques, gold coins to stocks, bonds, mutual funds or real estate.

The differences between saving and investing

So now that we know exactly what each process entails, it is time to compare the two. The main and most obvious difference is the time difference. Saving is typically for smaller, shorter-term goals set in the near future (usually three years or less). Investing is aimed at assisting you to achieve bigger, long-term goals set at least four to five years away.

The second major difference is accessibility to cash. While a savings account gives you access to ready cash when you need it, investment funds are not as readily available. Risk comes into play when speaking about investment of any kind, taking us to the third difference between saving and investing.

There is virtually no risk in placing money into a savings account. You are guaranteed that the money will be there when you need it, but investing always involves risk; there is the potential that you may lose all or some of the amount invested.

The fourth and final difference is quite often the driving force for people deciding to save or invest — earning potential. You can earn interest by putting money into a savings account, but this interest is generally a much lower return than that of an investment. Investments have the potential for higher return as they appreciate over time.

This increases your net worth (the value of what you own minus the value of what you owe). If you purchase an investment at a certain price and later sell it at a higher price, voila! Profit! Please remember, however, that with investment, the greater the risk, the higher the potential return or loss of your money.

How to use saving and investing

In order to gain financial success, you have to be able to use both saving and investing together. Saving always comes first. It is the foundation on which you build your own little financial empire. Unless you inherit or win a large sum of money, it is your savings that will provide the capital to feed your investments. So you need to be able to save some money for your immediate needs and invest other money that you have.

Everyone should have a savings account designated for emergency purposes which should include enough money for you to live on for three to six months if you lose your income. Once the emergency fund is set, devote the remaining portion of your income to investing. Wealth, here you come! This is how you build your wealth over the long term. Develop a portfolio and fill it with several different types of investments.

Despite where you may be on your financial journey, it is important to note that in order to achieve the best results, it is vital that you match your financial tools with your savings or investment goals and objectives.

Investing is not just for the wealthy. Anyone can set aside a little money to invest, keep a close eye on it and reap the profits. Taking control of your personal finances will take time and work on your part, but with the right tools and sound advice you can be well on your way to financial success.