Why Your Savings Formula (Income-Saving = Expense) won't work!

You probably heard of the Savings Formula that says:

Income - Savings  = Expenses
as opposed to
Income - Expenses = Savings.

The idea is to take savings from income before one deducts the expense. While this make so much sense because it moves you from being a spender to a saver I believe this is incomplete and will not work in the long run.

In one study, 6 out of 10 Filipinos would like to save using a bank account. But BSP made a study in 2012  and found that only 2 of 10 Filipinos has savings account. What is worst the average savings is around P6,000 only.

These are stagering numbers which has implication of the failure of the "saver's mindset". Yes the Saver's Mindset fails and for one good reason - Savers and not taught to be Investors.

Personally, I was a saver and when I was able to save, I didn't know where to put it. Should I invest it in a business? Should I put it in the bank? I ended up putting it in a business that I didn't understand and ultimately lost all that money.

This is the case of many Filipinos who does not know what to do with their savings.

So don't just be a saver be an investor. Invest your money in a vehicle that will yield higher return than the bank.

So what should be the new formula?

Income - Investment - Emergency Fund = Expenses.

We will talk about Emergency Fund later. But you can do your own research online what an Emergency Fund is. For now even this formula will help:

Income - Investment  = Expenses

I hope this article helps you!

Investing Personal Finance