At first, the equation seems quite simple Income - Expense = Savings
This gives two opportunities to Increase savings/investments, to maximize savings we would need to either increase income or decrease expenses. The question is which would I focus on first and which would be better overall? This article evaluates the options between increasing income and decreasing costs.
Increasing Income
Long term
Increasing income means finding ways to earn more money this could be a promotion or making more money by working more. Other options may be starting a side hustle or finding ways to make money more passively. Generally, this is an option that takes more time and can be seen as a longer-term option, as it may be more difficult to earn more money, in the shorter term.
However, this option would be better long term in terms of the potential to increase savings on the other hand decreasing expense may be limited at a certain point, as increasing income may mean fewer compromises in the way you are spending money and is able to increase exponentially if successful.
Decreasing Expense
Short term
Decreasing expenses means finding ways to reduce costs, some costs are fixed or cannot be avoided, while others are more manageable. Therefore I think it is good to periodically review the costs to see if money can be saved. For example, a daily coffee of 5 dollars amounts to $150 dollars a month which could be saved, or sometimes money can be saved by changing internet providers, so there are many ways money can be saved.
This option is oftentimes implementable in the short term, sometimes even immediately which makes this an easy option, however, this may require some sacrifices it all is about finding the right balance that would help you achieve your savings/ investing goal.
Saving Money
In the end, it all comes down to the gap, the bigger the gap the more money is saved. Saving money is the first step towards investing. After saving it is all about what is done with the money saved. Whether increasing income or lowering expenses, I think a combination of both is ideal and longer term it would be more beneficial to increase income, as lowering expenses may be limited, however, should never be discarded, if you increase your income in parallel with your expenses the net effect would be negated.
Example 1: $10.000 (Income) - $9.000 (Expenses) = $1.000 (Savings)
Example 2: $ 4.000 (Income) - $2.000 (Expenses) = $2.000 (Savings)
In this example, we can see that more income does not necessarily mean more savings, it all depends on the situation and how you manage expenses. It all requires discipline to achieve the desired monthly amount of savings. After saving, it is all about what you do with your savings, whether you have a specific goal or investing.
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