Financial Literacy, Personal Finance, savings

Parkinson’s Law:The reason why we fail to save money.

 

parkinsons law

Few years ago or many years ago, when you just started working,your income was small. You survived on that level of income and you thought that your salary was not enough that was why you did not save money. But today,your income is higher but it is impossible for you to save still. The reason for this is because you are under the Parkinson’s Law. It is a law that states that the work expands so as to fill the time available for its completion.  So, if you will rephrase the law, it says: The expenses expand so as to fill the unnecessary wants to spend all the incremental salary instead of saving it. While you income is increasing, your spending will increase as well but you fail to save money for you to use for your future expenses. Instead, you get yourself into building more liabilities than assets and you start believing that it is impossible to save money.

Saving money is behavioural. It is how you set your mind to prioritize your saving money first before you spend. If you think your salary is small, you can still set aside some of it, if you want to. It is not about when you earn bigger, that’s the time that you will start to save. You should start right away, when you got your first job.  Saving should be always part of your budget because you need to pay yourself as well. When you spend all your income, you are paying other people first. Your priorities will be your bills that you have to pay every month which you will not benefit in the long run. You will make other people rich but not yourself that is why Meralco, SM, Petron, Globe and other big companies are getting richer because for sure we need to pay them. We never pay ourselves as well through saving. Ideally, you should set aside from 10%-20% of your income. If you are not comfortable yet setting aside 20% of your salary because you have so many liabilities,you can start with 10% savings. If you think that 10% is still big,try 8%,if not,try 5%. The important thing about this is creating a habit,start where you are most comfortable. Even though, you start saving small at first and gradually, you can increase the saving percentage of your income in the near future. From 5% saving percentage, you can now save 20% of your income.

We have to break the Parkinson’s Law for us to save effectively. Everytime that your salary increases or if you have bonuses,make it a habit that you have to save 50% of it right away and use the 50% to other things that you like to add to your lifestyle. You need to allocate your income for you to have directions where your money should go. Practice to increase your savings rather than increasing your expenses when your income goes up. Always use this formula: Income-Savings= Expenses, rather than Income- Expenses= Savings.

Building your savings will be your muscle for you to start to become Financially Independent. You can now grow your money through investing and protect your income as well because we are not going to work for the rest of our lives. Saving should not be the only goal but it is the foundation for you to achieve your financial goals in life. Breaking the Parkinson’s Law will benefit you for you to be effective and efficient in handling your finances. Let’s beat the Parkinson’s Law.

Let’s all be financially free!

 

Archie M. Yuki
Financial Adviser,Investment Consultant and Insurance Specialist
4th floor Karina Bldg., No. 33 Shaw Blvd. Pasig City
Tel No. 571-3274
Mobile Number. 0917-5769607, 0923-4941362
Email Address: archieyuki30@gmail.com