Money Basics: Money Equations

hate-math-love-counting-money

Remember your basic mathematics?  Equals, addition and subtraction? I knew you would :-). Great! Because that is all you need to understand the basic money equations on today’s edition of MBWBB :-). Ok, you also need to understand the concepts of “less than”, “greater than”, and “%”, but I am 100% confident that you have this covered :-D.

We all hear about saving being the key to having more money; it is true!  Which brings us to our first equation:

(1) saving = not spending

It is only money that is not spent that can be saved… logical abi?  Glad that you are still with me :-).

We spend on things that we consider to be necessary and things that we like; each person’s list of necessary things and “I like” things would vary considerably, as it should be.  So, in order for a person to be able to save / not spend their money, our second equation must hold true:

(2) money made > money spent

This means that you have to receive more money than you spend; same thing flipped around means that you have to spend less money than you receive.  So, in order to save money, you would need to either make enough money to cover all that you would like to spend and save, or adjust your spending to fit within the amount of money you receive and have enough leftover to spend.  This leads to our third equation:

(3) money received = money spent + money saved

Are you still with me? Great 🙂 !

We would all love to be able to receive enough money to cover all that we would like to spend and still save; if only wishes were horses :-).  In the real world, that is one wish that very rarely comes true, sigh.  So, for most of us, we are usually working with the constraint that is the amount of money we receive, and we have to somehow find a way to fit in our spend and save requirements and still be happy!  We can work hard and increase the amount of money we receive by getting  a promotion or working  a side gig, but the percentage of people who have so much money that they do not know what to do with it would likely remain at the low end.

So what should we the majority do?  Accept this and work with it :-).  It is usually useful if a conscious effort is made to save, and our fourth and fifth equations should help:

(4) money spent = 70% of money received

(5) money saved = 30% of money received

This means that we should strive to spend at most 70% of whatever money we receive, whether it is N1,000 or N1,000,000, and the rest should be saved.  Did you say this will require making choices?  Absolutely!  There would be choices about whether to buy that aso-ebi or continue that expensive gym membership.  This is what being frugal is all about, and – as you must have observed – most of the genuinely financially successful people are also the most frugal.

I believe in the power of helping others and giving back.  The holy books encourage us to give of ourselves and our belongings to those who are in need and could benefit.  Consequently, I usually recommend adjusting equations (4) and (5) above to:

pie-chart

Source: freeimages.com

(6) money spent = 65% of money received

(7) money saved = 25% of money received

(8) money used for charity = 10% of money received

 

You still here with me?  Yay!!!  😀

That’s enough equations for today 🙂

How do you go about implementing the recommended equations you ask?  Those will be covered in future posts – the next set of which would cover basic money concepts that would help put the commonly used terms in perspective.

I am looking forward to your comments and questions :-).

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5 thoughts on “Money Basics: Money Equations

  1. Pingback: Relationship with Self: Change | Relationships, Rants & Raves

  2. Pingback: [Guest Post] The Importance of Financial Knowledge and Financial Planning – An Economic Migrant’s Perspective | Finomics 101

  3. Pingback: Budget for Love | Finomics 101

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