Wednesday, December 23, 2015

A little a day goes a long way; A lot goes a longer way

Savings more or earning more is the way forward? Some say it's savings more, some say it's earning more and some say both are important. To me, I think the sequence is more important.

 I think if you're having a fixed pay where your income is fixed, then there's nothing else you can do to increase it. If you want to save more, then you have to cut your spending. The savings equation is very simple; Savings = Income - Expenses. Cutting expenses is the least disruptive way towards saving more. Here's where the needs and wants are segregated, and you want to reduce frivolous expenses down to a minimum. But there's only so much you can cut once you've tried. Without going down the cheapskate route, being frugal still means having to eat food and having a shelter above your head when you sleep at night. There's also so much you can cut without sacrificing long term health too.

This is the point where you have to think about increasing your earnings. This is much more disruptive than cutting costs, because it will involve changing your entire assumptions about your earning power. At some point in time, you have to rack your brains to think what other streams of income can you get while still maintaining your expenses. This is hard, and there's a lot more reasons (or excuses) you can give not to do this and continue cutting your expenses to save more.

So, for salaried workers, save more by cutting expenses first, then go and try earning more.

For salesman and self employed, where there's no such thing as a fixed salary, you'll find that people tend to favour earning more as a way to save more. Once you think of yourself as a company, you'll want to increase your net profits by increasing revenue and not just reducing cost. Which is fine, until you realise that people who earn a lot more tend to spend a lot more too. If that's the case, then the next step is to learn how to stop your cost from rising proportionally to your earnings. If you earn much more than the rise of your expenses, net net you'll still save more.

So, I think for those without fixed pay, try to earn more and then try to reduce your expenses in order to save more.

What about me? I started saving more by cutting costs. Then when I realised that I've nothing more to cut because it is so painful for me to live such a miserable life like that, I started to change my assumptions to earn more. Ironically, that is also painful. I've to work a lot more hours and a lot more odd hours. Hence the first 50k that I saved is so much tougher than the last 50k that I saved. It's like that - if you want to create a new habit, you have to constantly remind yourself and basically live and immerse yourself in that environment. That's why you have to ask yourself why you even want to save this amount in the first place.

Motivation will make your journey more understandable. Desperation will make it possible. A little goes a long way, but for me, a lot goes a longer way. A lot of what? Effort!!


Sillyinvestor said...


Like many salaried workers, after the saving part, we tried to earn more "through inveatment"

Some earn more and more from
Investment that they can say goodbye to their job. But I guess earn a bit also better than nothing ...

starlight said...

What impressed me is the equation: Savings = Income - Expenses.
So simple and yet so true.

la papillion said...

Hi SI,

Ya, that's why investment is an integral part of the whole process. If you can get $100 through investing, that's another $100 earned to add to your savings. Or you can treat it as an offset against expenses haha

la papillion said...

Hi starlight,

Yea, it's simple but might not be easy to execute. The equations shows us only two way for savings to increase and it's that simple. But not easy to follow what you know is simple, haha!

Ao said...

Agreed. The time spend on thinking on how to reduce expenses and calculating every single cents could be used on thinking on how to increase income.

Kevin said...

Just like cooking an awesome dish. Needs a little bit of this and a bit of that - a delicate balance. Investment is like the special ingredient or secret recipe to give it a boost.

Strong earning power but still can't clear that credit card debt? No go. Low earning power but save like mad? Possible, but may be slow progress. Why not both?

la papillion said...

Hi ao,

Haha, long time no see you commenting :) Glad you agreed with me ;)

la papillion said...

Hi Kevin,

Ya, eventually we'll realise that playing the game with only one hand is going to be a serious disadvantage. So the sooner we realise we have to use both hands, the easier the thing goes. I think for most employed person, earning more is going to require more brain racking than spending less, haha

It's simple, but nobody says it's going to be easy, haha!

Gudeg Lalas said...
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