There are three types of people on their methods of saving money.
- Income - Expense = SavingsThis type of saver tends to spend his or her income first for expenses, and whatever it is left, will be considered savings. Most people failed to save in this process due to their perception that they are spending money below their income. This clearly shows that the person does not keep track on his/her expenses and only relies on what is left on their ATM savings account. We usually termed this as a "Luck" Saver.
i.e. At the beginning of the month, the person receives an income of 20,000. Since the person relies on perception when spending, he never realized that he/she has spent 19,950 pesos at the end of the month. Before the 2nd months income, he/she was able to save only 50 pesos.
- Expense - Income = SavingsThese are the people who haven't received their income, but already have their expenses lined-up. These are the people who were able to accumulate bad debts from loans or credit-cards. They subjected themselves to spending spree and totally OUT-OF-CONTROL.
i.e. At the beginning of the month, the person has accumulated already 10,000 peso worth of credit-card expense. When his/her 20,000 pesos income came, the person is already limited to budget his/her remaining 10,000 pesos to a whole month. If this habit will continue, he/she will remain on bad-debt.
- Income - Savings = ExpensesThis is the most ideal way to save money and accumulate wealth. The moment your income is provided, set aside a portion of that money for you savings basket. The remaining money will be used for your expenses. In this way, you will be disciplined to limit your expenses and not to extend your savings. With this method you will be able to set your expenses and savings fixed.
i.e. When the person received his/her 20,000 peso income, 10% has already been set-aside for his/her savings. The person is now free to spend the remaining 90% on anything he wants. He/she will be able to accumulate 24,000 pesos at the end of the year if he/she continue to do this type of discipline for 12 months.
