Saving is about discipline. It entails awareness of income and expenses. It’s about being money-smart and paying yourself first. There’s a need to stick to the budget and not spend more than what is disposable. The discipline in savings is part of the discipline in doing business.

Spending is more natural to us than saving, so it seems. You spend, often in excess, without realizing it. On the other hand, you have to be conscious about saving, but once it becomes a habit, it comes naturally. Let’s interject a passage to stress the point: “We sow our thoughts, and we reap our actions; we sow our actions, and we reap our habits; we sow our habits, and we reap our characters; we sow our characters, and we reap our destiny.” If saving becomes a habit, then it becomes natural as breathing.

Saving is an integral part of attaining economic independence or, in short, getting rich. You could get rich by earning more, then saving a big chunk of it. You could also get rich by saving more, even if the earning remains the same. You could have a combination, but saving is always an integral part of it.

When you save, you provide a cushion for emergencies and other contingent expenses. You don’t have to borrow and incur additional expenses by way of interest. You have ready capital for expansion. More importantly, because saving is opposite to expenditure, being conscious about saving means you’re also conscious about controlling expenses, including runaway credit card debts.

But saving, by itself, may not be enough, unless, of course, the interest earning of the savings is enough to cover the daily expenses. You would need millions for that. To illustrate, to cover an annual expenditure of P1 Million, you need a little more than P133 Million for regular savings (at .75%) or P15 Million for time deposit (at 6.5%). Chances are, you don’t have that amount and, besides, we are talking about current expenses, not your retirement fund.

Business and investment enable the saved capital to work for you. Just a caveat, though. Hurrying to get rich is also the cause why so many are duped by the get-rich quick schemes like pyramiding or the Ponzi schemes. You have the money and you want to get it back as soon as possible and with the highest level of income possible.

With business and investment, your savings are earning more money even if you’re somewhere else, also making money. This is why the rich is getting richer, an irony that is sometimes unfairly taken against the rich. It’s not a sin to maximize resources to produce more. The entrepreneur “shifts economic resources out of an area of lower and into an area of higher productivity and greater yield.” (Peter Drucker, Innovation and Entrepreneurship, quoting J.B. Say).

This is Part 2 of 2. Please click here to read Part 1.