Subtract Savings From Your Salary Before Expenses To Save More Effectively

Subtract Savings From Your Salary Before Expenses To Save More Effectively

The typical formula for budgets is to take your salary, subtract your expenses and then save whatever you can from the leftovers. If you want to get serious about saving though, flip that order around.

Picture: Jack Pearce/Flickr

As personal finance blog One Cent at a Time explains, expenses have a tendency to take up too much of our budget when they’re given free reign. By prioritising your savings first, you may reduce the amount available for expenses (perhaps this will even involve downgrading your lifestyle a bit), but you ensure that your savings are protected:

To be honest, most of us are doing the other way around. What we do is Salary-Expenses = Savings. If we continue to do this, then we can never have even a penny to save. Again, this is a matter of mind setting. Decide how much percentage of your salary you can allot for your savings. Normally it’s 20%. Once you received your salary, set aside the 20% and then spend the remaining.

How much you save may depend heavily on your salary (for some, 20 per cent may be far too much to live on). It may also be hard to make the change immediately if you’re in the middle of a lease or something. However, the next time you have a chance to change your expenses (such as when you move), consider budgeting for savings first, then deciding what you can afford from the rest.

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