Before we address the problem, let us first understand the problem. The problem that we are here to discuss is about money matters.
We are going to talk about savings.
So, let me first explain few concepts. Savings is a concept that’s correlated to income and expenditure. Let’s define them quickly.
Savings, what are savings?
Savings is the amount set aside. Those who work at their jobs or run a business get paid. Thus, the amount revived for such considerations is termed as Income.
Income is the amount of money that you receive. The other concept is expenditure. When we get paid we spend.
All these three concepts are deeply correlated to each other. Let us look at the equation :
I = S +E
So, whatever, we have can be put in two compartments- savings and the expenditure.
Our money matters are not pure mathematical equations because no matter how you put them on paper, they are always influenced by our emotions, moods swings and above all behaviour.
Therefore, the above equation can be interpreted in 2 diffrebet ways depending on tu center of our focus.
The first way of looking is – from my expenditure perspective.
EXPENDITURE = INCOME – SAVINGS
SAVINGS = INCOME – EXPENDITURE
Most of the people when told to do savings select the second option. The second equation tells us that you save after you are done away with your expenses. You will have used your money for the various kinds of expenditures and then whatever is left is your savings.
Behaviorally, we can go on spending as long as we have expenses on our mind. And as we know that there is no end to it, this equation basically fails to get you savings.
Now, let’s have a look at the first equation. The first equation says that if you spend what you have left after you have saved! Here the savings have been factored in to arrive at our expenditure. It basically means that your savings should not be dependent on expenditure. Rather, your expenditure should be dependent upon your savings.
Spend after you have saved.
Therefore, make the savings as the first thing to come to your mind. Think of what you want to save and postpone or cut down the unnecessary expenses so that you can meet your savings targets.
A lot of your savings challenges will disappear once you have started to remember the first equation.
