Saving is an essential part of achieving financial progress. Financial progress quickens when your spending rate is a lesser part of your income. That is, the less you spend, the more you save. To lessen your spending rate, it is important that you reduce how much money you spend or that you take on an extra source of income.
Determine Your Spending Rate:
Personal Spending Rate:
Firstly, personal spending rate is not very insightful or interesting when you calculate it once and then ignore it afterwards. Saving and spending change over time based on the needs, wants and preferences. With calculations, you can constantly observe and fix your mode of living to reduce your spending rate and increase your saving rate over time.
To know how important a personal spending rate is when considering the relationship between expenses, incomes and savings, you need to decide which comes first – savings or spending?
Savings First:
‘Pay yourself first’ as is a strategy which involves taking out your savings the moment you get your paycheck to avoid spending that money unintentionally later. This mindset suggests that saving money can be carried out without being influenced by spending. But this mindset is simplistic because it presumes that everyone makes enough money to meet both essential and personal needs.
The truth though is that most people do not choose how much to save. Instead, they decide on what to spend and save whatever is left after meeting their needs. This is to say that your saving rate is determined by your spending rate and not the other way around. So to increase your savings, you need to reduce your spending.
It is often harder for the majority of people to realize an increase in the available income than a decrease in spending. Everybody can draft plans and make ways to reduce their spending through lifestyle choices but looking for extra sources of income requires more effort.
Bottom Line
Note that this is not a debate between increasing income or reducing expenses. Both are equally important factors in the discussion. An individual with lower incomes often has no choice than to spend a higher percentage of money than they can save. These individuals will have more interest in looking for additional sources of income. But individuals with high income (six figures) will need to focus more on modifying their lifestyle to increase saving and reduce spending.
