This Grade 8 lesson explains the relationship between income and savings, showing how to calculate the percent of income saved, set realistic savings goals, and understand why setting money aside from income matters for reaching financial targets over time.
What Is Income?
Income is any money that comes to a person over a period of time. For a student, income might come from an allowance, a part-time job, gift money, or odd jobs like babysitting or shovelling snow. Understanding how someone earns money is the first step before deciding how much of it to set aside. If you want to look closer at how different jobs pay workers, the lesson on types of pay covers hourly wages, salaries, and commissions in more detail.
What Are Savings?
Savings is the part of income that is not spent right away. Instead of using every dollar on purchases, a portion is set aside for future use, such as a bigger purchase, an emergency, or a long-term goal like a trip or a car. Many people keep their savings in a bank account, which keeps the money separate from everyday spending money and can even earn a small amount of interest over time.
Income and savings are connected by a simple idea: income is the total amount coming in, and savings is the leftover amount after spending. This can be written as
\( S = I - E \)
where \(S\) is savings, \(I\) is income, and \(E\) is expenses (money spent).
Calculating the Percent of Income Saved
One of the most useful numbers in personal finance is the percent of income that gets saved. This tells you, out of every dollar earned, how many cents are actually being kept rather than spent. The formula is
\( r = \dfrac{S}{I} \times 100 \)
where \(r\) is the savings rate as a percent, \(S\) is the amount saved, and \(I\) is the total income.
Worked Example
Suppose a student earns 80 dollars in one month from an allowance and a small job, and manages to save 20 dollars of it. The savings rate is
\( r = \dfrac{20}{80} \times 100 = 25 \)
So 25 percent of the student's income was saved that month, and 75 percent was spent.
Setting a Savings Goal Using Income
Once you know your income and your savings rate, you can plan ahead. Suppose someone wants to save 150 dollars for a new bicycle, and they can consistently save 30 dollars each month from their income. To find how many months are needed, divide the goal by the monthly savings amount:
\( \dfrac{150}{30} = 5 \)
It will take 5 months of saving 30 dollars from income each month to reach the 150 dollar goal. This kind of planning connects directly to budgeting, where income is organized into categories like spending, saving, and giving.
Why the Income and Savings Relationship Matters
Tracking the relationship between income and savings helps build strong money habits early. A higher percent of income saved means goals get reached faster, while a lower percent means more time is needed, or spending needs to be reduced. Comparing savings rates over several months can also show whether spending habits are increasing or decreasing relative to income, which is a useful skill well beyond Grade 8 math class.