05 January 2011

Money saving: how exactly we do that?

This is taken from a posting I received from PROFEC, an Indonesian entrepeneurship mailing list. Pretty interesting and valuable on how you're supposed to save your money. Please read on....

In a public financial training, a Financial Planner (FP) asked the participants: "How much money do you usually save every month? "

So many versions of the responses from the participants but it appears a remarks that said: "Saving? Just for a standart living alone is not even enough! "

Financial Planner (FP): "So, how many person in this room who do not have the habit of saving each month?"

Nearly half the participants raised their hands.

FP: "Why are you reluctant to save each month?"

Budi: Well, Sir, like my friend has said, was "...for living alone is just barely not even enough! "

FP: "Well now let me kindly ask you :what's the principle of saving as you know? "

Budi: "At the beginning of each month, I shall allocate my money to cover the expenditures that month, including paying existing debts and bills. If there are some amount of money left, I will save them. However, the problem is, every month there's virtually nothing left in my pocket."

FP: "(laughing) yes that is why you can not save because that is a wrong mindset. The correct principle of saving money was not from residual income but it is budgeted. Then you allocate the rest of your income to cope with the expenses".

Syamsul: "Ah yes. I read that principle too, which says that saving is done in front. Which is called "Pay yourself first?"

FP: "Yes principally, do that in front or we could say  "pay yourself first". Why? Because there is a financial law applicable universally known as Parkinson's Law. The law says that any income earned by
someone will be soo caught by the amount of expenditures. Let's say your income is 1 million rupiahs, then your spending will likely approach or exceed 1 million.

When you get to 3 million increase in income, then your spending will somehow increase to 3 million too. Hence you barely have nothing to save."

Syamsul: "It means the more income I have, the more expense I shall have too?"

FP: "Exactly and this is causing a lot of people unable to save money. Because their expenses are close to or even exceed their income."

Budi: "Then how are we supposed to save exactly?"

FP: "Take a percentage of your salary and then save or invest thme. The allocate the rest to cover the expenses accordingly."

Syamsul: "What is the ideal percentage on how much we should save?"

FP: "It's up to you. You may decide the percentage initially, then adjust it to meet your financial ability and then gradually increase up to 10-30% of your total monthly income. Practice this habit and you can always save no matter what."

Syamsul: "Yes I totally agree and this will be our new year's resolution for me and family."

-00 -

Why are people unable to save money? Actually there's no such big issue, just wrong mindset. So change your mindset and your life will change too.

-Change Your Mind Change Your Life-




za said...

Then what we do with our savings?

za said...

Then what we do with our savings?