Question of the Day: What works for you?

What works for you?

The question for today is a simple picture I saw while browsing through Facebook. So here's my question for today! Which equation works for you? "Income less savings is equal to your expenses" or "income less expenses is equal to your savings"?

Let's talk about our spending ways and discuss which is actually the correct way, or I think this question is vital specially for young adults like me (Yes, I am still young!). And I would like to share to you my thoughts regarding this matter. 

Let's start by defining the following items! All of these definitions came from Merriam-Webster's website.

INCOME(noun : \ˈin-ˌkəm also ˈin-kəm or ˈiŋ-kəm\)

-Is the money that is earned from work, investments, business, etc.

EXPENSES(noun \ik-ˈspen(t)s\)

-The amount of money that is needed to pay for or buy something.

SAVINGS(noun: plural \ˈseɪvɪŋ\)

-The excess of income over consumption expenditures.

After learning about their definitions, let's now look at the two equation.

Let's start with the first equation:

INCOME - EXPENSES = SAVINGS

In a general way, we always believe that what is left is what we can keep. Like how our salaries are computed (Gross Income less deductions is equal to Net Income/Take away pay). 

This equation in my opinion however is an inefficient way of saving. Why? It's simply because most of us would tend to indulge ourselves in numerous miscellaneous expenditures. Come on, let's be honest, most of us would love to have that latest Smartphone model, a brand new next generation console (for guys), or that nice dress, those perfect pair of shoes (for girls). No need to deny it, I'm guilty of this as well. We all are. Those who have credit cards are often a victim of this as we are attracted by 0% interests with a "6-month" payment term.

How do you control this? Well, I think it works well if you know how to prioritize. Prioritizing which are the required expenses for a given period will change the outcome drastically. Next one is self-satisfaction, because what you want is that those savings be used mainly for special and important expenditures. However, if you're not satisfied, most of us would say "it's okay to spend my savings for one more pair of shoes since the first one didn't suit me well". 

"We'll always find reasons to use our savings when we're not satisfied of what we have."

INCOME - SAVINGS = EXPENSES

For the next equation, I for one believe that this is not the common way of spending specially for most Filipinos. However, this is known to be the most effective way of "Saving". This way of savings was recently pertained to as the "Kurot" (Pinching) way of saving. This is definitely a "frugal" way of saving money (by the way, being frugal is not being a cheapskate!). When we take savings into account first and then spend for what is left, we feel less guilty of spending it since we know that we already have a part of it safe inside a bank.

However, the issue here is the portion of the money we have to save! Most of us end up saving less to bring a big portion for spending. I guess we just have to  be more conscious of the purpose of our savings. I mean saving another dollar more and spending another dollar less can really make a difference.

IT'S ALL ABOUT WHAT WE NEED AT PRESENT AND WHAT WE HOPE TO BE IN THE FUTURE

It's true! I mean, we all have immediate needs and wants as well as future goals and plans. I guess we have to ask ourselves, do I really need a brand new shirt? Could be, maybe because you're stress at work and shopping is your only way of relaxation. Maybe not, simply because your goal is to buy that car your family's been dreaming to drive next year.

People will always have different priorities and goals.

So which one suits you the most?

Proverbs 13:11

Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.