Everyone wants to grow their wallet. But where one knows better than the other how to do that, one has more wealth and financial overview. As people want to escape the rat race, they dance around their finances and come across the many advice of experts who all tell different stories. Is a good job leading to wealth or should you invest everything? Or maybe save as much as possible and collect the interest? The three primary players — earning, saving, and investing — each bring a distinct set of moves to the table. Understanding the nuances of each can be pivotal in sculpting a financial strategy that aligns with your goals. How? Let's delve into the differences and their outcomes.

Earning: Going Classic

Earning is the genesis, the point of origin in the progress of financial growth. It is what people also know the most and do the most. Young people are taught that you can earn with a job. It encompasses the income you generate through employment, but anyone who’s financially conscious knows earning expands more. Because where earning is known to be the origin of income through working, it is also the long term outcome of past choices. We can also count business ventures, or investments to earnings. Earning lays the groundwork for financial success, offering the means to cover daily expenses, save for the future, and delve into the world of investing.

Saving: A Peaceful Mind

Saving is the act of setting aside a portion of your income for future use. It's a discipline that focuses on accumulating funds for anticipated needs or unforeseen emergencies. Savings act as a financial cushion, providing stability and peace of mind. The emphasis is on liquidity and safety, making it readily accessible when required. You can save also for deeper goals like early retirement , pay of a mortgage or a house for the kids. According to Investopedia, you can save the easiest with the 50/30/20 rule: “ Spend up to 50% of your after-tax income on needs and obligations that you must have or must-do. The remaining half should be split up between 20% savings and debt repayment and 30% to everything else that you might want.”

But at which point, when you have executed that strategy, saving becomes interesting? That’s when another rule comes in: how much savings you can invest. There is no rule for that, as it is hard to determine how much of your savings you still might need in the short term. Where one needs at least $ 50.000,- in savings, another sits fine on $ 10.000,-. Investing roughly between 5 and 15% of your savings, without diving under your minimum should keep you fine, but seeking a financial budget advisor can make the difference. Also when you already have a lot of savings.

Investing: Growing Your Wealth Over Time

Investing takes the spotlight as the dynamic force in wealth building. It's dynamic because it offers both exciting opportunities and a degree of risk. This dynamism stems from deploying your money in assets with the potential to appreciate over time. Unlike saving, which prioritizes safety, investing introduces an element of risk, but with the expectation of much higher and way more sustainable returns than saving or earning through employment. Common investment vehicles include stocks, bonds, real estate, and mutual funds. Importantly, as your investments grow in worth over time, you not only potentially gain higher returns but also safeguard your wealth against inflation . To make the most of investing, it's crucial to choose the right investments based on your financial profile and risk tolerance. Understanding how much risk aligns with your comfort level is key to making informed investment decisions and building sustainable wealth for a lifetime.

Formatting the Picture

Let's compare all these types, to shape the picture. As earning generates the financial resources needed for various goals, saving preserves capital for future needs and emergencies. Investing on the other hand aims to grow wealth over time and is sustainable. Earning is immediate and ongoing while saving is short to somewhat medium-term. Building wealth through investing works best in the long term, other than the stories you‘ll read or hear from ‘experts’ who gained millions in just one day. When we look at the risk and return picture, earning is a stable and predictable form of income. Saving is low-risk and gives low returns as interest rates on savings are low in comparison. But saving emphasis on capital preservation, not to grow richer from sleeping money. Investing in this story gives variable risk, the potential for higher returns, and capital growth.

But how does each strategy relate to its essential ability to convert into money and how quickly does that happen? Well, with earning, that depends on if you contracted or have an income out of investments like real estate. With savings, your cash flow is immediately accessible, but the growth of it is much slower. With investing, the picture gets the toughest, because it depends on the asset. With stocks, you harvest quicker than with investments like a good old whiskey barrel or a house.

Each strategy grows differently. The growth potential of earning is quite limited. When you’re contracted, you’ll see your salary indexed only once time a year or with a bonus. Also as an entrepreneur, you need to give more to get more, which means that you for example become more skilled to ask for a higher hourly rate. Saving is also limited in growth due to its conservative nature. With investing you have the potential for substantial growth over time.

Blending the Three Strategic Musketeers

While earning, saving, and investing each play a vital role, their distinctions lie in their purposes, time horizons, risk profiles, and growth potentials. An effective financial strategy often involves a harmonious blend of these elements, with the weight of emphasis shifting based on individual financial goals, risk tolerance, and time horizons. In the intricate tapestry of personal finance, understanding these distinctions empowers you to navigate the complexities and make informed decisions tailored to your financial journey.

Experts Do the Blending

When it comes to investing and tailoring that to a steady form of income, why not let financial professionals do the investing for you? You don’t make your own suits or build your own car, is it? If you have already been on the investment road for a while, find contact with us. The seasoned experts of DHF Capital S.A. check in on your future investment goals, the time it takes to reach them, and the risks attached.