EN - Spending plan and saving management

To have a spending plan and to manage our savings are two key factors for one persons’ economic performance.

Have you ever wonder why some people with lower incomes seem to go further with their money? How can they with a similar or even inferior salary do more? How do they seem to be chiller and happier despite not earning much money?

This article details the importance of saving and spending plan both from a psychological point of view and from a financial point of view.

Save is a wide term. According to the Spanish dictionary RAE, it is inside the concept of “saving” to reserve part of the ordinary spend , keep money for future needs or avoid wastes or greater consumptions. Ultimately, saving is any action taken oriented to have more money, either because it is kept or because it is not spent.

When someone counts on saved money its posture while facing economic situations on daily life change radically compared to somebody that does not have those reserves. Situations such us confronting the end-of-month when there is no money available generate great stress to the person that it is suffering it. Decisions such us job change, acquiring a high price good (house, car, etc.) are faced differently depending on the economic base of each one.

The need of money on short term makes decisions taken not to be optimal in many cases, which might bring you to even worse financial situations. And that need does not only influence decisions in which money participates, but it affects directly or indirectly each decisions taken. When brain is too concentrated on a problem or activity it gives up perceiving other elements, just because it is gathering all efforts on himself. This gets all opportunities and experiences go away unperceived, letting the person inside a vicious circle where everything around him/her reminds its problem. And that affects directly to the person’s mood.

Saving ability is, indeed, a must to provide a basis of economic tranquility that allows facing the remaining life decisions from a relaxed and conscious perspective.
But, as it was upper described, save is not only keeping money, but saving it is also not wasting or manage correctly those wastes to avoid the impact they might have in financial capacity which might lead the person to an uncomfortable situation.

In many occasions, saving it is thought to be more dependant to the incomes than to the spending, but one of the less known Parkingson laws points us out that the waste increases up to cover all incomes.

That principle is easily observable among the people around you. Practically all people to whom you might ask around will answer back expressions such us “I don’t have enough”, “what can I do, I don’t have a license to print money!”, etc. This is just because, apart from exceptions, people fall in greater wastes when their incomes get higher.

Also, we can observe some cases in which what it happens is totally the opposite. With an average salary they can undertake many things. In that case it is plan and spend priorities determination what makes the difference to the external observer.

It is important understanding that money is limited and, obviously, fundamental to decide in what we are going to spend it and what we are going to obtain in return.

For instance, on daily food shopping we make some wastes that, if those would be analyzed attending to figures, they would surprise us, but they are left unperceived because of the net amount they mean on the shopping list. According to the Spanish consumer magazine OCU, the difference between prices on 1 liter of milk can vary from 0.48€ to 0.89€. We will assume two alternatives not on the extremes with similar characteristics, whose net price differ 10 cents (0.60 and 0.70). The consumption of milk recommended for a person older than 3 years is around 3 glasses a day (1 litter). According to the Spanish state statistics from the gubernamental agency INE, the average family in Spain has around 2.6 members, what means an annual consumption of 949 litters. The annual waste difference for a family with the upper given assumptions of consumption and prices is around 95€. Surely, if the decision to be taken were just about choosing between two available options with the prices 100€ and 195€ the purchase decision would in most cases vary.

It is mainly in the analysis and the waste plan and not on the incomes where people’s saving ability dwells. And it is that ability what makes people with similar incomes be able to take more advantage of their Money.

Another cliché regarding saving and incomes is thinking that you can save only when your incomes are greater. As explained it is really common wasting more when the incomes start growing. Not only this is common, but it is up to some point reasonable. For that reason, not always with greater incomes someone is actually saving more. The amount save must not depend on waste, but it has to be a percentage of the incomes, so that this amount is adapted to the circumstances. Obviously, someone that is earning more money will be able of saving more money in absolute terms, but surely in percentage the savings might be similar.

The recommended saving rate for economists and institutions is that one that allows you cover your wastes during at least 1,5 or 2 years without the need of incomes. As wastes are usually adapted to the incomes if saving has been performed on a percentage base, that goal might be correctly achieved in any economic situation.

At the beginning of the year, in Europe the 49% of the families only had savings to keep their current lifestyle during three months if they gave up becoming any incomes.
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All the factors here explained drive us to the need of getting a saving plan sustainable in time and independent to our incomes and a waste plan that allows us taking decisions that will maximaze the number of things we can do with the Money available. After all, we have to live and, if possible, live well.