Savings

Beginner

Savings is the part of income that is not spent on current consumption and is instead kept for future use, either as cash or in accounts and investments.

Savings starts with a simple calculation: income minus spending. If you take home 3,000 a month and spend 2,600, you have saved 400 that month. Over a year, that adds up to 4,800.

The word is used in two ways. It can mean the amount saved during a period, which is a flow, or the total amount built up over time, which is a stock, as in "she has 20,000 in savings".

Savings serve different purposes. Some money is kept for emergencies, some for near-term goals such as a holiday or a deposit on a home, and some for the long term, such as retirement. Money for short-term goals is usually kept safe and easy to reach, while long-term savings are often invested to grow faster than inflation.

Savings left in cash for many years tend to lose purchasing power if the interest earned is lower than inflation. This is why people often distinguish between saving, which keeps money safe, and investing, which accepts some risk in pursuit of growth.

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