Episode 447: Saving vs. Investing: How to Use Both to Build Financial Freedom

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Investing is like planting a seed. You won't see the results overnight, but if you keep watering it, you stay patient, and you don't dig and look at it, right? You don't sit and watch the plant grow every day, because you won't probably see the growth. It's too frustrating. Over time, you will see it can grow into something powerful. T minus 10

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seconds, welcome to the journey. To launch podcast with your host Jamila Souffrant as a money expert who walks her talk she helps brave journeyers like you get out of debt, save, invest and build real wealth. Join her on the journey to launch to financial freedom.

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If you want the episode show notes for this episode, go to journey to launch.com or click the description of wherever you're listening to this episode in the show notes, you'll get the transcribed version of the conversation, the links that we mentioned, and so much more also, whether you are an OG journeyer or brand new to the podcast, I've created a free jumpstart guide to help you on your financial freedom journey. It includes the top episodes to listen to, stages to go through to reach financial freedom resources and so much more you can go to journey to launch.com/jumpstart

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to get your guide right now. Okay, let's hop into the episode.

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Hey, hey, hey, journeyers, welcome to the journey to launch podcast. I am your host, Jamila Souffrant, and I'm so glad you are joining me today. Today is going to be a soul episode where I am going to talk about something really important necessary to reach your goals of financial freedom and independence, and that is your ability to increase your assets, and you do that by saving and investing. So we will be talking about the difference between saving and investing, why they are so important, why you need both, but ultimately understanding how the different roles in your life and your financial journey play out, and why it's really important to utilize both of them in your journey. Now, saving and investing are words that can be used interchangeably. You often hear if you have a goal, usually it's financial goal. It's going to be something involving saving for something, or maybe investing for something, investing for retirement, saving for a car or a purchase or an experience. We have these goals that we have for ourselves, and it's important, because when I talk about what I call the fi formula, where it is understanding the cash flow, the inflow of money, right? Everything starts from your income. Income is money that you're bringing in that you work for. Eventually, that's how you start out. You have to work for the money you're bringing in, but you have to convert that money into assets, assets, meaning things that can produce income for you to live again. So that's going to be through typically investing. But you also need assets in terms of saved money, it's so important because there's no way this concept of financial independence where you don't have to actively work, where your investments and whatever assets you saved up are basically what you're living off of. There's no way for that to work unless you build up your assets. And so this is why understanding saving and investing is so important, and knowing the difference is so important, because they're like cousins, they are related, right? Think of your favorite cousins and cousins that you have. They're related, but they're different, and they have different maybe purposes in your life, or different personalities and roles, and so understanding and knowing their roles, you know when to call on them, or when you're going to hang out with them for certain things, knowing, okay, I'm gonna bring this cousin here, but I can't bring that cousin here, because I know how they are, right. Same thing with saving and investing. We're gonna go through that now, early in my life, I was blessed to understand the concept of saving, and I know that's not necessarily something that is a habit for everyone that has been developed, but because my mom, being a single mom coming here from the island of Jamaica, and having me so young, and also just having the mindset that she had, along with my grandmother, they were big savers, and they like, I don't think they had a choice, because they had to utilize the little resources they had in order to make a way for themselves, in order to survive and then thrive. When they started to work their minimum wage jobs or bringing in a little money, they had to find a way to work to make excess of what they had meaning after they paid their expenses, they had to have additional money to do other things to get them to the next level.

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In life, and because of that, I saw that happening in real time as a little girl, and then they told me, saving is important. It doesn't matter how much you save, but you need to save something. And I remember my mom taking me to open up my first savings account when I was five years old. And I remember anytime I got money for my birthday or Christmas, or just anything that came into me as a child, it was okay, you're going to save maybe $1 of that. It was always you saving something and putting something aside. That carried through to when I started working my first jobs at summer youth at the age of 14 and so on, and never ended. And because of that, it did put me in a good position, because as I started to make money, and even if it was a couple $100 a month through summer youth, or eventually, when I got my internship with inroads in college, I was making 1000s of dollars, I would still act like I didn't really make a lot of money. I would spend on the necessities, but then I would save a majority of my money, and saving allowed me to buy my car, buy my first condo at 22 years old. Now I did have help for my mom. She did give me a portion of the down payment for my first condo. Very blessed with that, but her pain, her her help or gift to me alone would not have been able to cut it for what was needed to make this condo purchase work, and so I had to have been ready for that. And so saving is powerful. I mean having a safety net, saving for something is necessary so that you can feel some flexibility and some freedom. But investing is really what ultimately takes you from where you are having to work and being on what they call their rat race, or the hamster wheel of working, spending money, working, spending money, investing is what allows you to step off of that, because then you're growing your assets so your assets can work for you. So while I'm proud of the saver that I've been and the savings that I have now and how I'm able to be flexible on my life because of it, it's really the investing part that took me to the next level and allows me to experience the freedom I have today, which is why I think it's so important to talk about the differences and hopefully help you figure out where you can start and what you need to focus on as you move through your journey. So first, let's talk about what it means to save what it means to save money. Saving money means putting money aside in a safe, easily accessible place with little to no risk. So that is putting money into something like a traditional savings account. You could put it on an online bank, so a high yield savings account and other forms, right? But typically these accounts, and I'm just going to keep it really simple right now, just savings accounts are traditional. There's no risk. They are FDIC insured. You can get your money quickly from it, whether immediately, if you go to an in person bank or dealing with online bank. Now, usually because there's not a lot of risk, meaning your money is safe for the most part, it's not being invested. It's not going to fluctuate. If you put in $20,000 it does not matter. Let's say to a savings account. It doesn't matter what the market is doing, what stocks are going up and down, your $20,000 will be there. It's guaranteed. There's no risk. But because there's no risk, you're not making any money from that. There's no really reward, in a sense, where the money is growing for you. So on average, the return for a traditional savings account can be as low as point 05 and sometimes up to point two, five. And that's a traditional savings account. Now, if you are looking at high yield savings accounts, which are really great and helpful, because while it's not investing, it's more of a way your money can grow faster than a traditional account, you can actually see more of a return, around three to 5% return on your money in an online yield savings account. So the difference, again, or the key thing about saving is it's low risk, easy, accessible and safe, and usually you're putting your money there for short term goals, emergencies or known expenses that are going to come up over time. It's money that you want access to. You don't want to put it at risk. So if you need it right away, you won't be worried that it declined in value or you have less than what you put in going back to high yield savings account, the reason why you typically get a higher return on that versus a traditional account is because the high yield savings account online are online institutions.

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So they don't have the overhead and expenses that a traditional bank, a brick and mortar bank has, where they're paying for real estate and rent and employees in these different locations. So typically, that's why a high yield savings account is able to offer you more of a return. There's pros and cons to both of those, but I am a high advocate of high yield savings account, especially because they are also insured. Your money's insured, just like a traditional account. It may take maybe a day or two longer for you to access your money, in terms of you can't go into, you know, a bank and pull the money right out and get the physical amount of money, but you can transfer the money from a high yield savings account to a traditional one, and it can still take a day. So the benefit there is, you're making more money, but it's still safe and accessible on the amount that you have deposited in that account. Now the purpose of saving usually you're saving for a reason, like an emergency fund. So emergency fund is between three to six months of expenses you can be saving for short term goals, like vacations, home repairs, car purchases, and then known future expenses that are going to come up, like maybe tuition or taxes, or maybe you're going to be moving or vacation. So not everything has to be, you know, a strict financial goal. I talk about this in my book, Your journey to financial freedom, sometimes you just have lifestyle goals, right? You have a vacation goal. You have a summer spend goal, where you don't want to be stressed out. You know, you spend more, if you're like me, you spend more money in the summer, and so you want to have just a bit of money saved up for your summer fun. So all of these are things that are more saving for emergencies, short term goals, financial goals, and then lifestyle goals that you want to achieve and known expenses that are coming up. The pros to saving in this way is liquidity, so you want to be able to get quick access to that money when needed. Safety. There's no market risk. Your money is not fluctuating with a headline news or something that the government is doing. It's, for the most part, safe, and there's peace of mind. This is really key, because the peace of mind that having emergency fund gives you, or an fu fund didn't mention that just now, but a fu Fund is a more robust type of emergency fund. Fu fund is what it an acronym for, like you can say fu to a job, a person, a thing, whatever, where you have enough saved up. Maybe this is like six months of expenses to take a longer break or for a bigger pause or redirection in your life. And so having that as a peace of mind is, I mean, it's priceless. I mean, I feel that now, because when I was able to quit my job, having the security of starting or continuing on in my business, knowing that I had my fu fund, there was key even in my season of less work more just living life the way I am now, I am put to

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peace knowing that my fu fund and my emergency funds are fully padded so that I can take more breaks and not work as much, right? And so that peace of mind is really key, because so many people, and maybe this is you included, are operating from a place of I don't know what's going to happen next month, or I don't know if this check does not come in, or if I don't get that job, I don't know how I'm going to pay my rent. And so being able to save is important. It is actually the first steps right after you're able to get to stability. So I had the five journey or stages, where you're working through five stages to reach complete financial independence, and once you get through or past the stage of just being stable and you're paying maybe off debt, you are focusing on creating your savings plan, something where you have something to fall back on in case of an emergency or something coming up. So it is, it is very important. But there are some cons to saving. If that is all that you're doing, saving is essentially going to save you if something happens, but it's not going to catapult you. It's not going to leap you forward in terms of net worth or asset growth. You're going to have minimal growth in those accounts, because the return on what you're putting in there is so low, the percentage return rate you're going to lose so this is really key. You're going to actually lose value over time because of inflation when you park your money in these accounts, if that's the only place your money is in. So inflation meaning just the cost of the items. If you want to put it in this terms, how a pizza, right? I remember back in the day, my favorite pizza spot, the pizza used to be $1.25

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now that.

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Same pizza. That one slice of pizza is $3

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right? It's the same pizza, from what I'm aware of, maybe the ingredients changed a bit. Who knows? But it's the same pizza, but it's more money, and that is because all the other costs of goods have gone up, and that's called inflation. So the let's say you saved and were blessed to save $100,000.10

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years ago, and you're like, Well, I'm just gonna put it, keep it in my traditional savings account that earned maybe point zero 5%

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it's gonna keep it there. That 10,010 years ago, cannot buy the same amount of items that today. If that 10,000 stays in the account for the 10 years, and so you're losing purchasing power and the value of the money over time by just parking it in an account like that, which is why you need both. And it's really not meant saving is not meant for long term wealth building. It's meant just to save you in cases of emergencies and for you to fall back on, but it's not going to get you to true wealth because of the little risk and little reward that comes with that. So for me, like I said, Yes, saving helped me build my emergency fund and my fu fund, and having those habits were super helpful, and it gave me the cushion to take bigger steps in my life, quit my job, start a business, work less, but it's the foundation for financial freedom. It is not the launch pad to financial independence, if that makes sense. It's the foundation. You need it, but it's not going to get you there. Something I want you to think right now about for your savings is, do you have savings goals? What are you saving towards? And do you have a clear cushion for your emergencies, because they are important, but understanding that that is going to be different from actually building wealth is key. Now, what does it mean to invest? Investing is the idea and means of putting your money into assets that grow over time, like stocks, bonds, real estate, they grow and have more of a potential return for you, but because of that return, the more return that you will get from those assets. There are more risk. So the same way that your money can grow, you can also lose portions of that money or asset also, so it involves having more of a risk tolerance and patience and the type of wealth that I'm talking about here, especially for this episode in investing. I'm talking about long term investing, not investing in the short term, or making income from investing that some of people talk about, or even my peers talk about where you're potentially trading, you know, day trading, option trading, or doing certain things to live off of that income. That is not the investing I'm talking about here. I'm talking about long term investing, where you are parking your money for decades and decades now, the purpose of investing, building long term wealth over time,

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beating inflation. So that inflation that I talked about, if your money is sitting in an additional savings account, and I'm actually going to give you an example with numbers versus if it's an investing account, the potential of how, what that difference is, you can beat inflation potentially, and you're creating more financial freedom as you go along, because of the growth and the potential for passive income. Now, just to give you an example of what a difference can look like if you are putting the same amount of money in a savings account and then the same amount of money in an investing account. Actually have this example in my book. So class, if you turn to page 269 No, but really on page 269 in my book, I give this example where, let's just say you were to just put $10,000

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into a traditional savings account for 20 years, and you never touched it for 20 years, and it grows at a and I actually gave it a more generous rate here than traditional point 05, rate. I did point to 5% rate, let's say that $10,000 sits in there for 20 years at a traditional savings account at a point to 5% rate, that $10,000 will grow to $10,512

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over the 20 years. Right now, if you invested that $10,000

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just the 10,000 you never even put any more new money into it over the same time period, 20 years, with an average return of 8%

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you have $46,610

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instead. So the difference is you gaining $512

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in a savings account versus 46,000 I'm just going to round it down, $46,000

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in an invested account because of the difference in rates.

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Yes. Now of course, I'm going to have people who say, Well, that's like, if by the time you take it out, there's no dip in the market, or there's no crash or whatever, all these things that are potentially can happen when you invest, but the difference is staggering. And again, remember, we're talking about long term investing and putting our money away for the long haul, but the money that you get in return over the same amount of time, if you not, if you're not intending to use it, if you don't need it, it's so significant and just can't be ignored. So that is the difference with how you beat inflation with investing and build wealth. Because, you know, I use the example of $10,000 but even if I'm using smaller numbers, and you're investing over time or saving over time, the difference is still one where you can you cannot afford to not invest.

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Hey, journeyers, if you are loving this podcast, then you will love my book, Your journey to financial freedom, a step by step guide to achieving wealth and happiness. I wrote this book for you. This book is for you if you want a clear and enjoyable path to having more money, options and a rich life. This book is for you if you hate your commute and the fact that you need to seek approval or permission from a boss. I hated that when I worked. This book is for you. If you weren't born into wealth, you didn't marry rich or win the lottery, but you still want freedom. This book is for you. If you're at a crossroads, a major decision or event is imminent, maybe a career change, marriage, starting a family, pressures are reaching a tipping point, and the discomfort and the desire for more can no longer be ignored. And this book is for you if you find yourself zoned out at meetings, looking out the window or daydreaming about the life you truly want. So go pick up your journey to financial freedom.com. So I can show you how to map out how to get from where you are today to where you ultimately want to be and enjoy the journey while you're on the path, head over to your journey to financial freedom.com.

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To see where you can pick the book up. It's available on Amazon, bookshop.org, Barnes and Noble, your local bookstore everywhere. Go to your journey to financial freedom.com. To get the book now. Now

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let's talk about the cons, right? Because I'd be remiss if I don't if I only say the pros of investing and not the cons. But yes, there are risks when you invest. There's market voltality, there is risk in the short term of losing your money. So if you were to invest, let's just say $10,000 today, and in a week, or even in a year, you're like, you know what? I need that money back. Because the time horizon of investing has not been long enough. You may potentially, depending on when you now enter the market, to take your money back and sell. If it's a downturn, could potentially lose the money, or lose some of it, right? There is a risk of loss, and so you do it does require emotional discipline, in a way, and doing the other steps First, where we talk about building that foundation, so that you don't have to need that money right away, right? So the savings account and the things you're saving for, if you are doing that correctly, and then you're investing, if there is a market downturn or something happens, you won't need to touch your investments, per se, in a perfect world, because you have savings and the appropriate accounts that are not diminishing based on what's happening in the market, which is why you still need both.

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I like to say, when you think of money and math, right, saving is adding your money together. It's like two plus six equals eight. When it comes to savings, like it's just adding it's going to stay the same. And investing is like multiplying, where it's not two plus six equals eight, like in the savings example, it's two times six equals 12. It's more money, and it's using the same amount of money, right? But there are factors in both that you have to consider

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investing is like planting a seed. You won't see the results overnight, but if you keep watering it, you stay patient, and you don't dig and look at it right? You don't sit and watch the plant grow every day, because you won't probably see the growth. It's too frustrating. Over time, you will see it can grow into something powerful. So thinking about your investing history, or maybe you're not investing currently, at the moment, think about your long term goals and your financial independence plan. Where do you see yourself? Do you want to retire? I would think so if you're listening to this podcast, do you want to retire early and exit the workforce? The way that's going to happen is if you have a not just a savings account, but a investment portfolio that eventually pays you, right? You used to pay your investment account so it grows, but now your investment accounts and assets pay you that you can live off of. That is the concept of.

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Of reaching financial independence, and so start to think about what that looks like for you, and if you are actually doing the things on track, or even investing to get there. Now where to invest, I talked about saving, and you saving an additional account and then a high yield online savings account. With this episode, I'm going to keep it really, really basic when it comes to investing.

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You are investor right now, if you have a 401 K account through your job, or a four or 3b plan, depending on the type of job you have, you hopefully have access to a retirement account. And while that retirement account feels like, who cares about the the what's going to happen in 50 years if I'm trying to reach my freedom today, that is a vehicle that you can start investing in, if you haven't already, so that you can start to build long term wealth. So you can just what I like to call, check it off the list of the things you have to do, so you can begin to focus and work towards the end the now things you want to do so, investing over time, in your 401 K, getting up to the company match, if your company gives you a match, provides you a match, investing up to that point, maxing out your retirement accounts that you can investing in traditional IRAs or Roth IRAs, depending on what you have access to, that can be done outside of your job, or if you don't have a job that offers you that you can open that up on your own added investment firm or company and invest in what I like to call low cost index funds. I have a couple episodes on just index funds. If you want to learn more about that, search the catalog, I'll also save it or link it in the show notes. But investing, over time, in your retirement accounts where there's a tax advantage, meaning the government actually gives you breaks and you pay less in taxes because you're investing this way, is a great way to start. So many people try to jump ahead to more fancier investing where okay, like they want to day trade, they want to option trade, crypto, all of these things which can work but are not going to provide you stability until you do the basics. First, like investing for traditional retirement, and once you get on track with that, then you can fast track it to start then for early retirement. And an example that I will give is that when I first started working, I was given the option, this is my full time job of investing in my retirement account. And I remember for the first I don't know how many years, it wasn't long until I at least got some sense to invest in my company match. But I was like, why am I investing in this account that I don't need until I'm 60? Like, I want my money now. I literally remember saying that to myself when given that option. And as you know, I started to just get a little bit more mature and older, I realized, wait a second, at least invest up to the company match. And it wasn't until I found out about the fire movement in my early 30s that I was like, Wait a second, I need to be investing in maxing this out. Like, first of all, I am privileged enough where I'm making enough where I can max this out. And still, you know, still feel like I can live my life. So why not? And once I started doing that, the trajectory of my wealth changed very fast, and I was able to max out my retirement accounts for a couple years. This is how my husband and I saved and invested our $169,000

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in two years, where, even though the retirement accounts and our invested money are things that we will use still based on our age 15, maybe 20 years from now, it gave me the security to take more risk today and back then, when I quit my job, because I knew if all else fails, even in the moment, in the current moment, I'm not earning a lot of money. I have enough investment or retirement account money to grow over time, where I know that 5560 year old Jamila will be good. So it took a lot of weight off my shoulder and allowed me to take more risk by investing in the long term. So I want you to also think if you are also one of those people, like how I was, who thought investing long term or in retirement accounts are just it's for something that's so far off, I won't see the benefit. You will see the benefit once you start doing it, because it allows you to do so much more in the now. So just to recap, to just go over the way saving and investing work and how it will work for you, and you're thinking about your financial freedom. Journey is savings equals safety and stability. Investing equals growth and freedom. You need both. You need both to build a balanced financial life, and depending on your journey or stage and where you are.

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With your income and your priorities, you know that's going to look different of how much you can do towards both. But both are important. Savings is the foundation, but investing is what takes you to the next level. I'm often asked, What do you do first? You know, I there's all these competing goals that I have. Should I be saving or investing? And just to give you a quick rule of thumb in terms of saving and investing, rule of orders or operations, building an emergency fund is key. So whatever that emergency fund looks like for you, it can be a starter emergency fund, which is usually $1,000 or a bigger one, like a three to six month emergency fund, which is the combination of three to six months of your expenses, you want to save that up, then you do want to pay off your high interest rate debt. I know we're not focusing on debt in this episode, but paying off your high interest rate debt is key, but also after you've done that, or in the meantime, depending on your journey or stage, you're going to want to start investing consistently, and that is through your retirement accounts, whether that is your traditional 401 K, 403 B plan or IRA or a Roth IRA. And then you can think about taxable investing, which are not retirement based, but thinking about investing consistently is key. And of course, you want to save for your other life events, so if you're having a baby or you want to buy a house, you may have to then put that as your next order of operation after paying off your high interest rate debt or in the meantime. But it's all going to depend on where you are in your own financial situation. Remember, everyone is going to be different, but building the foundation will give you the confidence to take the risk you want to take to

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be more secure in your financial decisions once you have the net created, and allows you to make those bold moves without panicking financially because you don't have enough to fall back on when you're saving an investing plan work together, your money has both security and power. So think about protecting yourself today in case an emergency happens, but then looking out for your future self, whether that's your tomorrow self or the next week or next year or 10 years from now, and protecting that person too. So I want you to reflect upon what we just covered and think about, are you saving and investing? And if you are not financially in a place where you can do both, at the moment, that is fine. If your view gone through, and you look at your cash flow and there really is no room to save or invest, then you should definitely pick up my book where I can show you, step by step how to create more of a gap to do that, but really look through at what you're doing and see if you are saving appropriately and investing appropriately for the stage of life you're in and for the goals that You have for yourself. Don't over complicate this. I know so many people who do have enough of savings, a lot of savings, and it's just parked in a savings account, like a traditional one, not even a high yield online one. And so if that's you, I want you to go look at that account. I see how much you earned in that account over the past year, or five years. And then think about, okay, next step, how much could I potentially move to a high yield savings account online where I can make a little bit more money? And think about also, how much more can I start to invest so my money can actually grow for me, right? Have those real reflections and conversations. And look at your money. Look at your account to see what's really going on. All right. Journeyers, I hope that was helpful to you, understanding the difference between saving and investing, why you need both, hopefully demystifying it for you and giving you some takeaways and some motivation to take action so that you can get to your goals, get to your dreams and eventually reach financial independence. Okay, until next time, keep on journeying. Journeyers. Don't forget, you can get the episode show notes for this episode by going to journey to launch.com or click the description of wherever you're listening to this and you can still grab your jumpstart guide for free to help you on your journey to financial freedom by going to journey to launch.com/jumpstart

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if you want to support me and the podcast and love the free content and information that you get here, here are four ways that you can support me in the show. One, make sure you're subscribed to the podcast wherever you listen, whether that's Apple podcast, that purple app on your phone, your Android device, YouTube, Spotify, wherever it is that you happen to listen, just subscribe so you are not missing an episode. And if you're happening to listen to this in Apple podcasts, rate review and subscribe there. I appreciate and read every single review. Number two, follow me on my social media accounts. I.

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