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The Equation Reframe that Will Help You Save

Posted in Live Better, Save More | Tagged: | Leave a reply

help you save, budgeting

Despite what you might think, conquering your personal finances has very little to do with being good at numbers. It doesn’t matter if you swore off math as a preteen. Elementary school level math is all that you need to help you save.

It all comes down to adding and subtracting and luckily, we have handy calculators and computers to do all the work for us.

If the math is so easy, why is it so hard to save money?

We have the equation wrong.

Yes, you read that right. We’ve been using the wrong equation.

The budgeting equation we know and love (or probably hate) is income minus expenses equals savings. Or in math form:

Income – Expenses = Savings

When we use this very simple equation, the same thing always happens. We never have money left over to save. How can this be? Is it because we are bad at math? Can we blame it on our willpower or lack or motivation? Nope and nope! It all comes down to Parkinson’s Law.

Parkinson’s Law says that a wardrobe will expand to fill all available closet space.

Data expands to fill the space available for storage and work contracts to fit the time we give it.

You guessed it… that also means that our expenses expand to fill our available income.

When we wait to see what’s left in our bank account after we live our lives, there will never be any money left over to save. It’s Parkinson’s Law! Haven’t you noticed that something always comes up? Most of the time it’s exactly what you have in your account – often even down to the cent.

What’s a wannabe saver to do? We can actually use Parkinson’s Law to our advantage. We just need a new equation.

Income – Savings = Expenses

Income minus savings equals expenses. Instead of thinking about what’s left over as savings, we have to think of what’s left over as what we have available to spend. How? Start with how much you would like to save. After income, how much is left for you to spend?

For many, what’s leftover over won’t be ideal. That’s okay! Start small. Saving something is infinitely better than saving nothing and it will begin to build momentum.

The key is to take action. Set up an automatic transfer from your checking to your savings account so that you prioritize saving first. If you aren’t sure how, start with as little as $5 a paycheck and work up from there. Don’t put it off and let another month (or year) go by without doing any saving.

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