“Save when you don’t need it, and it’ll be there for you when you do,” says Frank Sonnenberg in The Path to a Meaningful Life. It’s a quote that still rings true, even now. However, you can switch out the word “save” with “invest” and the statement would still be accurate. It’s an old-age debate: is investing money better than saving it? 

Well, saving ensures that you will have enough funds for rainy days in the future. As for investing money, you’re ensuring you will enjoy living life without worries in the future. Both sound great, so why do people still think that investment is the better approach to becoming wealthy?


Investment may provide a tax benefit

Saving money in the bank will require you to pay indirect taxes. Yes, the monthly returns have been cut from the tax, which means you cannot receive the full profits. Every nation has different, albeit similar, laws on this. In Malaysia, the interest received from money deposited in banks allows for a tax exemption. The same thing applies to certain types of bonds and securities. 

Although Malaysians may not have to worry about taxes when it comes to savings, investing money can be a more viable option to grow your money. For starters, you can invest money in Public Retirement Schemes (PRS) and the Employees’ Provident Fund (EPF) to be granted some tax relief. One of the benefits of PRS is getting Individual Tax Relief for up to RM3,000 per assessment year for the first ten years. In addition, any contributions to EPF with a maximum amount of RM4,000 are tax-deductible. Quite neat, isn’t it?


Savings does not mean safe from inflation

History has taught us that keeping money in the bank cannot counter the effect of inflation. Savings accounts have a low-interest rate, and it’s something that Bank Negara Malaysia (BNM) decides on. If you want to keep up with inflation, you’ll have to put more money into the interest rate. However, doing so is still not ideal.

Inflation is inevitable, and it’s something that comes crashing without you noticing. The best financial strategy you can do is prepare for the rising prices—food, gas, property, utilities—by growing your money. That way, you can make a sensible financial decision. So what can you do? Investing money is the solution that many people have taken. But be careful, always learn the details and strategies, and never let your emotions control your decision. 

On the other hand, investing money for beginners can be trickier than most. One strategy to remember is Dollar Cost Averaging (DCA), which means putting in a set amount of money regularly, regardless of the share price. It’s a great way to get disciplined and potentially lower your risks.


The investment allows investors to generate passive income

Sure, savings can do the same thing, only if you can put in millions of ringgits. And the monthly return will amount to the minimum wage in Malaysia. It’s an option and not at all risky, but let’s be honest, it’s not worth it. And with inflation knocking on the door, you need passive income to sustain your current lifestyle. Even the younger generation starts to open a new stream of income. Around 70% of Gen Z have a side hustle

With proper investments, however, you can have multiple passive income streams. The amount is according to your risk profile. If you have a high-risk appetite, you can go for stocks or high-yield bonds. These investments are better for long-term goals. For those who want to play it safe, putting your money in mutual funds would be better. It works similarly to savings. The difference is that an investment manager will handle the money allocation. So you can kick back and watch your money mature.


Money in the bank will be used as loans

The bigger the bank, the more money it can lend its customers. In other words, your deposits create loans for other people. It’s not a heinous practice, but rather the way banking works. The central bank oversees this and issues a monetary policy to determine the bank’s lending capacity. Do not be enraged since it’s essential to keep the money circulating. 

But in the grand scheme of the economy, one cannot deny the power of share markets. If the stock price goes down, it can negatively affect the gross domestic product (GDP). Hence, investing money is highly encouraged to bring stability to the market. And hey, you can say you have contributed to society, too!

All in all, savings and investments are necessary for your financial health. Investing all your money is just as bad as saving all of it in the bank. Balance is key. Before you decide to invest some money, make sure you have enough money in your savings to buffer emergencies. Lastly, always invest using cold money. The main goal is to have funds for a rainy day, so leave your active income out.