A very simple rule for saving money is to make sure that you “spend less than you earn”. Obvious, isn’t it? Despite its simplicity, for many people it is a difficult thing to achieve.
A good way to measure how well you are doing spending less than you earn is to work out your Over-Spending Index (OSI). This is the ratio of your spending to income. In the U.K., the average OSI is 1.21 – meaning the average person spends £1.21 for every pound they earn. Which can mean getting into debt.
To work out your OSI, divide your spending by your income (you could do this on a monthly basis, or annually). It’s a simple calculation, made even simpler by the Money Watch OSI Calculator!
A figure above 1 means you are spending more than you earn, which will lead to debt. Anything below 1 shows that there is at least a little bit left from your pay packet at the end of the month!
If you’re making a concious effort to save money, it might be worth re-doing this calculation each month to see if your OSI is coming down.