# The Saving Effect

Back in my undergraduate days, I had the habit of randomly saving money in my books whenever money comes in; I would live on the rest. I saved them in my non-academic books; books I less often read so that I won’t easily find them. With the passage of time, and the lean days came, I always forgot about the savings until after a while of being broke before I could remember to search the books believing I might have saved some money.

The feeling I got after finding money in some of those books can be likened to the satisfaction and freedom an incarcerated feels when his bail is paid. You might not have been denied your physical freedom before but I can bet you have been in the cell of lack and debt in the past with your self-esteem deep in the valley of despair.

Many times we are responsible for getting ourselves in such condition because we either ignore the wisdom and squander the money, having confidence in the next income, or we completely lack financial knowledge. There are no accidents in life. Everything is principled on cause and effect. Being poor or rich is a willful choice.

You can change your financial future. That is the good news. In Economics class, we were taught about the saving function: a functional relationship between savings and its determinants. it is derived from the consumption function: a functional relationship between consumption and its determinants. Consider the equations below where Y = Income, C = Consumption, S = Savings, and I = Investment.

• Y = C + S…………………eqn(1)
• C = Y – S………………eqn(2)
• S = Y – C…………..… eqn(3)
• S = I……..…….………..eqn(4)

Interpretation

Equation (1), in the absence of autonomous consumption: consumption without earning, one must earn to be able to consume and save. Equation (2), consumption is the excess of income over savings. Equation (3), savings is the excess of income over consumption. And equation (4), whatever is saved is assumed to be invested. Is your savings just savings? Savings are susceptible to devaluation by inflation. A good investment must rise above the prevailing inflation level.

There are incomes that are below our subsistence. In this case, we dissave to consume: by asset liquidation or credit consumption. According to Keynes (1966), “men are disposed as a rule and on the average, to increase their consumption as their income increases but not as much as the increase in their income”, the other portion of income not consumed is saved. But according to observation the proportion of the income consumed is greater. We must protest to the contrary by saving a larger proportion from every increase in income. Think about it, you survived without a job in the past, what if your income is lesser than it’s now, will you still make the excuse for not saving?

Today when I remember those days in school and my saving habit, I wish my books paid me interest on my savings then I wouldn’t have stopped saving in them. The good thing is that I have a better saving opportunity today in AB Microfinance Bank fixed deposit account. In my last piece, An Investment Option in Nigeria, I shared with you our attractive rates in double digits.

Finally, as you pursue your financial goal of owning your home, a car, investment asset, advancing your education… why save in a less yielding account. Why not move your money to AB MfB and see how quick you attain your goals. I am here to help you through the process. You can reach me at [email protected], 0703 744 7482.

Make that move now!