Financial Literacy Lesson #1: Income – Savings = Expenses

Picture this: You’re a young professional. It’s been two years since you graduated from college. You have put in all the hours into your job. Payday has come and gone each month, and so have the Christmas bonuses.

Meanwhile, your bank account is barely at maintaining balance.

Your savings are small to non-existent! Just as they were when you were an unemployed fresh grad.  

Cue Drake song: ~Started from the bottom, now we’re still here.~

That savings-less young professional was me just a few months ago. Before I really knew about financial literacy.

Financial literacy, or a basic understanding of how money works, is more doable than it sounds. You’ll discover practical and simple principles such as the “Income – Savings = Expenses” rule—an equation I wish I had heard about early on. Here’s hoping that you learn from my mistakes, and start your career strong with better money management.

Income – Savings = Expenses  

There is a huge difference between these two equations:  

✘ Income – Expenses = Savings

vs.

✔ Income – Savings = Expenses

Many people tend to follow the first equation, “Income – Expenses = Savings,” wherein the amount left after you spend your money goes into savings. Such was my mentality. My priority was to pay all my bills and spend for my daily needs (and wants). And then I would save up whatever money was left. Of course, that never worked. Spending first before saving left me with nothing.

But just a simple tweak to the equation did wonders to my finances, as it will to yours.

The idea is to follow the “Income – Savings = Expenses” principle, which requires you to develop the discipline to save first before spending. When you set aside money from the get-go, magic happens. You learn to work with the money you have, while the rest is safely stored in your savings.  

The takeaway? Financial literacy will help you make better informed choices on how you spend your money.

And on that note, I’d like to propose a new formula: “Financial literacy = More money.” Can I get an amen?

Adult like a boss by reading more financial literacy tips and other relevant education-to-careers advice on the Edukasyon.ph blog!