Viha, a young professional, is excited to receive her first paycheck and is full of pride. As she considers what to do with this paycheck, a dilemma emerges:
This dilemma is not really about money - it is about how the human brain works.
So viha thought about her friends, Ron and Emma, who chose very different paths when making money decisions. Should viha save or invest? Let’s explore the story of her two friends first to better understand the classic debate of saving vs investing, and then we can discover the best answer for viha.
The Tale of Two Friends
Viha has two friends - Emma the Saver and Ron the Investor.
Emma puts every dollar she can into a savings account. The savings account gives her peace of mind. At any moment, she can go to the bank or ATM and access the money. “Better safe than sorry,” she says. The money grows slowly - just enough to beat the dust collecting in the account, but not enough to beat long-term inflation.
Ron, on the other hand, chooses to invest in mutual funds and stocks. Sometimes the market goes up, and sometimes it goes down, which can be scary. But Ron knows that over time, a seed can grow into a tall sequoia tree yielding more fruit than a savings account ever will. This is the core of the saving vs investing conversation.
The Psychology Behind the Differences
Why do Emma and Ron think so differently? Let’s look at the psychology behind it.
People often want things now instead of later - this is called present bias.
Emma likes to save because it makes her feel safe. This is called loss aversion - we hate losing money more than we like gaining it.
Ron, on the other hand, is okay with waiting for bigger rewards later. This is called delayed gratification, like in the famous “Marshmallow Test” - where researchers found that people who can wait longer often do better in the long run.
What Is the Real Difference?
Saving vs Investing:
Savings:
• Best suited for short-term goals and emergencies
• Low risk, low reward • Provides peace of mind for unexpected events
• Enables quick access to cash when needed
Investing:
• Best suited for long-term growth
• Higher risk, higher reward
• Builds long-term wealth and outpaces inflation
• Increases the chance for financial independence and early retirement
So… Which Is Best?
Truthfully? You don’t have to pick one. The best approach is both - saving vs investing doesn’t have to be an either or choice.
Use savings for emergencies, peace of mind, and short-term needs. This satisfies the emotional brain (amygdala), providing security when life is unpredictable.
Use investing for long-term growth and financial independence. This satisfies the rational brain (prefrontal cortex), allowing you to harness the benefits of compounding over time.
Think of it like having a garden:
The flowers you water every day (savings) give you happiness now. The fruit trees you plant (investing) take time to bear fruit, but one day, they can feed you for years.
Final Thought
The richest people aren’t those who save every dollar nor those who risk every dollar. They are the ones who understand wealth through the lens of the psychology of money - the balance between present bias and delayed gratification, and the balance between loss aversion and long-term growth.
Save for security. Invest for prosperity. Model a little of both, and you’ll build a future with peace of mind and long-term abundance.
So, now you can guess where viha is headed in the investment journey
