Saving & Growth
Learn the basics of saving money and the financial concepts that affect how money can grow or lose purchasing power over time, including interest, returns, inflation, and time horizon.
Saving means setting aside money for future use instead of spending it today. People may save for emergencies, planned purchases, financial goals, or expenses they expect to have later.
Growth describes what happens when money increases in value over time. Depending on where the money is kept, growth may come from interest, investment returns, or other forms of financial gain.
Saving and growth are related, but they are not the same. Money can be saved without growing, while money placed in certain accounts or investments may have the opportunity to increase in value.
Understanding a few key financial terms can make it easier to see how saving and growing money work. These concepts explain how money can grow over time, how its value can change, and what factors can affect your progress toward financial goals.
Money that you set aside for future use instead of spending it today. Savings can be used for emergencies, planned purchases, or long-term financial goals. Depending on where the money is kept, savings may also earn interest and grow over time.
The original amount of money that you save, invest, or borrow before interest or returns are added. For savings and investments, the principal is the starting amount used to calculate growth.
Money earned for keeping funds in certain financial accounts or investments. Interest can also refer to the cost of borrowing money. When saving, earning interest can help money grow over time.
The percentage used to determine how much interest is earned or charged over a specific period of time. Interest rates are commonly expressed as an annual percentage, although the way interest is calculated can vary.
The gain or loss produced by an investment over a period of time. Returns can come from changes in the value of an investment, income it produces, or both. Unlike interest on some savings products, investment returns are not always positive or guaranteed.
The general increase in the prices of goods and services over time. As prices rise, the same amount of money can buy less, which means inflation can gradually reduce the purchasing power of savings.
The amount of goods and services that money can buy. Purchasing power can change over time as prices change, which is why the number of dollars you have does not always represent how much those dollars can buy.
The amount of time you expect to keep money saved or invested before you need to use it. A time horizon may be short or long depending on the financial goal, and it can influence how money is saved or invested.
Key takeaway
Saving is the foundation for setting money aside for the future, while growth describes how that money may increase over time. Interest and investment returns can help money grow, while inflation can reduce its purchasing power. Understanding these basic concepts makes it easier to learn how money changes over time.
Continue learning
Now that you know the basics, explore each concept in more detail and see how interest and inflation can affect money over time.