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Monday, June 6, 2011

How to Develop a Saving Culture

  Hello guys,i never wanted to talk about this.However i decided to because i realize that some of you may find it very useful when it comes to managing your finances.
  Ordinarily,savings is taken as income minus expense.What it means is that after you must have spent all you need to spend from your earnings as a business person or a salaried individual,what you have left is regarded as savings.Maybe wondering why,it is simple;it is what you have not yet spent.Before i go into details,i would like to look into the correlation among income,savings,expenses and investment.


  Income: It talks about what an individual gets into his hand or has in his hands monetarily,it could be salary from doing a nine hours job,earning from doing a business or earning received from a form of work/business of a type,it is definitely what an individual relies on monetarily for his daily bread,to keep body/soul together,to create class for himself etc.The level of an individual's income, goes a long way to determine his standard of living.An individual who earns five million naira annually,may chose to live in an highbrow area like Lekki,Ikoyi,Victoria Island all in Lagos,while the one who earns two hundred and forty thousand naira annually may  live in a lesser area.The difference between the both of them is the power of "income".

Savings:It is regarded as whatever is left with the individual,salary earner,business person after expense.It is that part of income usually kept aside for the"rainy day".It is always useful for unforeseen circumstances,investments, and in-built personal financial confidence.

Expense:It is always regarded as the money used in settling purchases/other issues.Simply put,expense is the money you have allowed out of your hand which by now is no longer yours but someone else's.This could have gone into bills,furniture,rent or something else,the cash itself is no longer yours as it has actually gone into exchange.

Investment:This is regarded as any venture that is expected to bring back returns.This return may take one year or more but the sole essence of this is returns in one way or the other.

Haven defined terms,i shall quickly take a look at their detailed relationship in real life situation.Let us consider a scenario of three workers on same annual salary.
   Scenario  
   Assume a net salary of  N3,000,000 per annum
   Assume 2kids
   Assume 1 wife.

  Mr A
  Salary(net)                          N 3,000,000
  Residence                           Duplex
  Area                                   Ikoyi
  Cost                                   N1000,000 yrly
  School fees(2 kids)             N500,000
  No.of cars/maintenance      3/300,000
  Miscellaneous                     N 700,000 
  Total Expense                   N 2,500,00
  Total Saving                     N 500,000

  Mr B
  Salary(net)                         N 3,000,000
  Residence                          3 bedroom
  Area                                  Ikeja
  Cost                                  N700,000 yrly
  School Fees(2 kids)           N 450,000
  No. of cars/maintenance     2/200,000
  Miscellaneous                    N 650,000
  Total Expense                  N 2,000,000 
  Total Saving                     N 1,000,000

  Mr C                        
  Salary(net)                         N3,000,000
  Residence                          3 bedroom flat
  Area                                  Mushin
  Cost                                  250,000 yrly
  School Fees(2 Kids)          N100,000
  No. of cars/maintenance    1/50,000
  Miscellaneous                    N 300,000
  Total Expense                  N 750,000
  Total Saving                    N 2,300,000

  Analysis
  From the scenario,it is obvious that Mr C, has more money kept aside after all expense.But why is this so?It is clear from the illustration,that all three men earn same salary.Mr C's more savings is due to a reduction in expense.He decided to send his kids to equally standard schools but with lower fees,rather than own two/three cars,he held on to one that is equally easier to maintain than that of his colleagues,he also decided to live in an area that is not regarded as an highbrow area,likewise,he cut down on other things like feeding,calls,clothing etc.

 Implication
Mr.C is more financially confident and has more money to take to the next level(investment) than his colleagues.A sudden resignation,retirement or termination of appointment is not likely to frustrate him as would his colleagues.

Speaking Generally
I once told a friend that you maximize to minimize and minimize to maximize, when talking about the saving culture.I was simply saying,if you increase your expense,you will reduce your savings,if you reduce your expense,you will increase your savings.I believe the above scenario,applies anywhere in the world,all you need do to increase your savings and convert it into investment is to reduce your expense, be you a salary earner or a business person.

  I do hope you have learnt something today,please share with your friends.

 
 

1 comment:

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