CashCow Chapter 1.1 – Income, Expense, & Saving

The agenda for this lesson is to channelize your surplus money in the right direction.

You might be earning income from different sources like – 

  • Salary/Bonus
  • Dividend/Interest
  • Capital Gain
  • Profit From Business/ Profession
  • Rent
  • Royalty Income

Your current income (money) and current expenses have a relationship with time.

Money and its relation with time

The money grows over time as you would get a promotion in your job, your business income increases, or investments grow.

But, as the income grows the expenses will also increase and the savings remains almost constant.

Imagine you have just started your job and have a salary of Rs. 30,000 and your monthly expenses are Rs. 25,000.

You have a savings of Rs. 5000, right?

By next year your salary becomes Rs, 40,000 and your expenses also grow to Rs. 35,000 because now you bought a new bike on EMI.

Again the savings are Rs. 5000.

Did a similar thing happen to you when you had the same level of savings even after your salary is increased?

How can we increase the saving without compromising lifestyle?

I am not that guy who will always say NO to spending money. 

But we have to spend smartly.

3 Ways to Increase your monthly savings:

  • Increase the income
  • Reduce the expenses, or
  • Do both


Increase the yellow markered area in this graph by increasing the green line of income and reducing the red line of expenses.

Higher Income Lower expense graph

Income can only be increased by creating an additional source of income because you cannot get a salary hike overnight. You can salary increment annually only if you are lucky.

Practically, you can pick freelance work on the weekend to generate extra income. I have seen people making Rs. 1,00,000 from freelance work (making sales pitch deck) along with the full-time job.

You can create easily make something between Rs. 2000 to Rs. 10,000 per month even if you have average skills of writing/designing/coding.

The internet has opened up many doors and windows.

You can start a blog or a Youtube channel along with your current job. You won’t make instant money like in freelance but monetize your blog in the future.

If you are not yet ready to make that extra effort, you can definitely work on decreasing expenses without compromising the present lifestyle

.. means reducing expenses smartly so that you enjoy your life.

Controlling both income and expenses in the coming years can create huge wealth.

Imagine that your salary is 20,000 per month and your expenses are 17,000 per month. You end up saving Rs. 3000 per month but that’s not enough to create wealth.

Scenario 1 When the income increased

Your income increased from Rs. 20K to 25K and your expenses remained at Rs. 17K. You are saving Rs. 8K every month instead of the earlier 3K. This will create an additional annual savings of Rs. 96,000 and you can have a savings of Rs. 9.6 Lakh in 10 years (without including the growth).

Scenario 2 – Expenses came down

If your income did not increase but somehow you reduced your expenses from Rs. 17K to 14K. You are saving Rs. 6K instead of Rs. 3K.

This will result in yearly savings of Rs. 72K and Rs. 7.2 Lakh in 10 years.

Scenario 3 – Income increased and the expenses came down

This will really accelerate your savings. Your income has increased to Rs. 25K and your expenses reduced to Rs. 14K. That means you have savings of Rs. 11K every month.

That means you would save Rs. 1.32 Lakh in one year and 13,20,000 in a 10 year time period, a significant difference from the above two scenarios.

If you are investing 11,000 Rs. every month with a 10% annual return then your money would become 22,72,000 with 13,20,000 invested amount over 10 years.

But you have to avoid taking a personal loan because the interest charges on your EMIs would eat up your entire savings.

Now let’s understand the bad financial situations;

  • Expenses are more than the monthly income
  • Zero savings
  • Existing debt repayment
Bad financial situation equation

In such a scenario, you do not have a real saving because you have a debt to repay in monthly EMIs. Your savings would go into repayment of loans. After a short period, you are left with hardly any money for wealth creation.

For financial freedom, you need to have a reverse situation where income is more than the expenses and you have zero debt.

Below is the simple formula to change the reality:

Solution equation for financial freedom
  • Expenses should be less than income
  • Positive savings
  • Zero debt

Debt is like a termite to your financial freedom dream. We will discuss debt management in the upcoming lessons.

Savings and Investments

You can start investing only when you are able to save money after paying your monthly expenses.

And wealth creation is possible only by making regular investments over a period of time with the power of compounding.

Power of compounding is so powerful that if you invest Rs. 11,000 every month at a compound growth of 10% per annum then you will have 22.7 Lakh in 10 years.

If you keep investing just 11,000 per month for 30 years then you would have 2.5 crores.

See, how easy it looks to make 2.5 crores with just 11,000 monthly investment.

If you can find a way to generate a 15% annual return on your investment, then the same 11K monthly contribution of 30 years would make 7.7 Crores.

Yes, almost 5 crores extra with the difference of 5% return. That’s how banks make money.

Banks lend you at the rate of 12% and give you 7% on your fixed deposits. This 5% difference made HDFC and ICICI rich even after paying all the salaries to their employees.

New ROI created by investment

You also leverage compound growth even if you stop investing after a few years. Your invested money would keep growing by itself.

You should be very careful and need to avoid a situation where the investment generates a negative ROI because then the curve will go down and can potentially burn all your existing returns and savings.

Negative ROI graph

At all times we need to make sure that the capital and ROI are preserved. You will learn more about picking up the right investments in the investment module.

But before that, you need to set priority in growing income and reducing expenses and building wealth and start working step-by-step as per the priority.

Priority 1

Managing Existing Funds & Expenses

Side Hustle / Side Business to boost income

Priority 2

Building Emergency Funds


Priority 3

Long Term Wealth Creation With Investment in Bonds, Stocks and Crypto.

In the next chapter, you will learn how to reduce expenses yet manage to buy iPhone 12 (if you really really love that)

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