Savings Over Income

It's ironic how we learn things in school and then afterwards realize that we had been observing that very concept all along. That happened to me this week when I was studying and thinking about the formulas for the average propensity to save and the marginal propensity to save. Unbeknownst to me, my dad regularly calculates the APS and MPS of the money we share among our family. After discussing it in more detail with him, I learned that he finds our APS about every month to make sure we're continuously saving enough of our income to put toward college, family vacations, retirement funds, etc. Depending on the resulting percentage, he then adjusts our level of savings accordingly. He also measures the MPS of our income annually and compares the change in the percentage of income were saving between years. This is really important for him to do because his salary changes every year, partly due to the fluctuation in the amount of money his boss gives him as a bonus. As his salary changes year by year, the amount of our income that were saving should change too. After calculating the MPS, he knows how much he needs to save for the next year. By doing this, he ensures that we save the appropriate amount of our family income to continue living in the conditions that we currently live in and to create important funds and make progress in paying off investments and loans.