Earnings and Income: The Building Blocks of your Financial Journey
Creating Wealth
To accumulate wealth, you need to generate a surplus which is the
money left over after all your expenses have been paid
Income-Living Expenses = Surplus
Generating a surplus is the primary way to build wealth over your
lifetime
Using an income surplus to create wealth
The Power of Saving Early in Life
Strive to generate a surplus and begin saving the surplus as early
as possible to keep your money working for you
The Dangers of a Deficit
Failing to generate a surplus is unwise. Worse, Continuously
incurring a deficit is unsustainable and can lead to extreme financial
stress.
1. Overspending leads to more borrowing (loan or credit card)
2. Borrowers end up paying more interest each month ( rather
than earning interest on savings
, 3. The interest, plus the continued overspending, will require more
borrowing (more interest, etc)
4. This quickly depletes wealth over time and makes it more
difficult to achieve long-term financial goals
The Downward Spiral of Deficit Spending
Saving your income Surplus
Targeted Savings ratio
● Indicates the percentage of income that you are actively
saving, as calculated by the following formula:
Savings ratio= Savings/income
Targeted Savings Rate
● The savings ratio over a specific time period
Savings Strategies
Payroll Deduction
● Occurs when the employer takes money automatically from
paycheck
● Contributes it directly to a retirement savings plan or other
savings account
Save more Tomorrow
● Commit to putting half of every future raise toward creating an
income surplus
Creating Wealth
To accumulate wealth, you need to generate a surplus which is the
money left over after all your expenses have been paid
Income-Living Expenses = Surplus
Generating a surplus is the primary way to build wealth over your
lifetime
Using an income surplus to create wealth
The Power of Saving Early in Life
Strive to generate a surplus and begin saving the surplus as early
as possible to keep your money working for you
The Dangers of a Deficit
Failing to generate a surplus is unwise. Worse, Continuously
incurring a deficit is unsustainable and can lead to extreme financial
stress.
1. Overspending leads to more borrowing (loan or credit card)
2. Borrowers end up paying more interest each month ( rather
than earning interest on savings
, 3. The interest, plus the continued overspending, will require more
borrowing (more interest, etc)
4. This quickly depletes wealth over time and makes it more
difficult to achieve long-term financial goals
The Downward Spiral of Deficit Spending
Saving your income Surplus
Targeted Savings ratio
● Indicates the percentage of income that you are actively
saving, as calculated by the following formula:
Savings ratio= Savings/income
Targeted Savings Rate
● The savings ratio over a specific time period
Savings Strategies
Payroll Deduction
● Occurs when the employer takes money automatically from
paycheck
● Contributes it directly to a retirement savings plan or other
savings account
Save more Tomorrow
● Commit to putting half of every future raise toward creating an
income surplus
