Saturday, January 5, 2013

The Right Formula To Saving

Do you have any savings? If yes, how do you calculate the amount you are going to set aside? If no, what are the reasons why you cannot save? Countless of people think that the savings should be made only after you have already paid your monetary obligations thus they only save after they have spent every portion of their salary to tax, bills and other expenses. Normally, people will calculate savings using the formula:

                                                                Salary – Expenses = Savings

Unfortunately, this formula will likely make you end up having a lot of deficits. And actually, this formula seemed rational to most people. I mean, how can you even think of setting aside money if you have a lot of bills to pay? As a result, a lot of people often forgo saving some other time.  Although this is the harsh reality, another formula that you can use to really secure a portion of your salary is:

                                                                Salary – Savings = Expenses

I believe in the concept of paying yourself first but whenever I try to tell some people about this formula, they just scratch their heads and think that I am just making the situation even harder. And again, their doubts make sense. How can they take a portion of their money and put it into savings and expect to spend the rest to pay the bills and other expenses? There wouldn’t be enough! I am not saying that you stop paying your bills and other expenses altogether for the mere purpose of saving. I'll explain further below.

For anyone who wants to save, set aside 10% of your salary each month that will go to your savings funds. Your savings fund can be your emergency, investment or retirement fund for all that matters.  For instance, if you are earning 15,000PhP you have to  deduct 1,500PhP (10% of 15,0000PhP) from it as your savings fund. The remaining amount (13,500 PhP) can be used to pay whatever it is that you need to pay. The key here is to spend your money only after you have set aside a portion of it to savings.

You may say that your entire salary of  15,000PhP is not enough to pay for all your liabilities (food costs, rent, utility bills and so on) thus you are tempted to forgo your savings. What you do if this happens is to look into your spending habits and expenses. Are you spending your money over things you do not need? For instance, if you love spending some of your money to watch movies weekly, then you might try cutting off some of your movie night-outs for the sake of saving. I am not raining on your parade and it is not bad if you watch movies once in a while so I understand if you say walang basagan ng trip or walang pakialamanan (none of my business) but it will not also hurt you if you cut back on your frequent movie night-outs.

Now if you do not buy on impulse and your real dilemma why you cannot save is that you do not have a big salary, then let me tell you that having a bigger salary does not guarantee you of bigger savings. What guarantees  larger savings is your discipline, perseverance and creativity. So let’s say you are not making enough, instead of resigning from work and looking for a better paying job, use your skills to earn more. If you are good in baking, then sell cookies and sweets to your officemates. We are given unique sets of skills so it is important that we use them wisely to make our lives better.
I am not saying that you should follow this formula as soon as you finish reading post. What I am saying is for you to give it a try for about one or two months and see if there will be any difference in your finances. If you think that there is no difference, then don’t waste more of your energy and just go back to the first formula. It may not work for you but for me, it definitely did.


I'd like to know what you think.