InvestorQ : What do we understand by savings and how are savings created?
Debbie Mascarenhas made post

What do we understand by savings and how are savings created?

Answer
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11 months ago


Savings is the excess of your income over your expenditure. If your monthly income is Rs.50,000/- and your monthly expenses are Rs.40,000/- then Rs.10,000/- is your monthly savings. As a prudent person, you will be expected to put this money in a bank deposit or in a Fixed Deposit so that the idle money earns some interest in the process. The opposite of savings is dis-savings or negative savings. Continuing with the above example, if you are earning Rs.50,000/- per month and your monthly expenses are Rs.60,000/- per month, then you are actually dis-saving. To meet the shortfall of Rs.10,000/- per month, you will have to borrow money and will have to pay interest on it. The big question, therefore, is how do you create savings?

That is the right usage! Savings have to be created. If you expect that you will save money after meeting all your regular and irregular expenses, then you will never ever be able to save money. You know your monthly income from all sources. What you need to do is to plan and adjust your expenses accordingly. Take the second case above. When you know that your monthly income is Rs.50,000/- then you need to adjust your monthly expenses accordingly. The better way to do it is to target your monthly savings and then build your monthly expenses accordingly. To put it more idiomatically, “You need to cut your coat according to your cloth.