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.
Sceario
Assume net salary of N3,000,000 per
annum
Assume 2kids
Assume 1 wife in all scenario
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.