What is the difference between investing and saving and how do you make money? 

When you simply save money, it keeps your money safe and available for emergencies and/or short-term necessities.  There is basically very low risk but your earnings are also low.  It is very liquid which means you have access to it at any time.  Examples of savings include savings accounts, CDs, and money market accounts.

When you invest, you a working to build wealth over the long haul.  Your risk level is much higher as the value of your investments will increase or decrease over time.  It’s also based on stock market performance.  Your returns on your investments are theoretically high.  But your liquidity is much lower.  You should plan on your money being tied up for years.  Examples of investments include stocks, mutual funds, real estate, retirement accounts and exchange traded funds (a.k.a. ETFs).

Your savings will earn interest although it might be meager at best.  Investments will earn in two ways.  The first is when you sell an investment.  You’ll earn what’s called capital gains.  That means selling your investment for more than you paid.  The second way investments earn is from investment income.  These are regular payouts or earnings on your investments that don’t require you to sell anything.  When I get earnings, I have my investments set up to purchase more of those particular investments.  That’s called reinvesting the earnings.  The earnings buy more shares.

In my book, I talk about diversification.  That means having a variety of investment types.  That reduces your risk when investing.  Of course, savings is the safest, but the worst for wealth building.

Moral of the story:

Think of it this way, you need to invest AND save.  When you save, you are protecting your money.  When you invest, you are growing your money.  I invested and grew my money to be able to retire and have a nest egg.  But I also saved to have an emergency fund.  You should do both consistently.