How a Penny Saved is worth MORE than a Penny Earned

“If I only made more money.” I would venture to say that each of us has had that thought cross our mind at one time or another. And while I certainly wouldn’t turn down an increase in income, all pennies are not created equal. I would argue that pennies earned are not the same as pennies saved.

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First let’s look at the penny earned:
Let’s say you bring in an extra $1 of income. Do you really get to keep that dollar? No! Remember the feeling of disappointment when you received your first paycheck and realized just how little of what you earned you actually got to keep? Of each dollar, you pay federal income tax, state income tax (or not – depending on where you live), Social Security, medicare, etc, etc. Let’s say all of these add up to 15% for the average worker. Your actual tax rate may be more or less depending on your personal tax situation. The exact number isn’t so much the point as is the fact that earning a dollar does not equate to receiving a dollar. In this example, that dollar earned looks strangely like 85 cents after taxes.

Now let’s look at a penny saved:
Let’s say instead of increasing your savings by earning an extra dollar, you save a dollar. How much of that dollar do you really get to keep? That’s not a trick question, the answer is $1. You’ve already paid taxes, etc. You get to keep the whole dollar saved.

“A penny saved is actually worth MORE than a penny earned.” (Tweet this)

Here’s another way to look at it:
Let’s say that part of your morning routine is stopping by Fourbucks (aka Starbucks) for your favorite brewed beverage. For nice round numbers, we’ll say it typically costs you well, four bucks. That’s correct – sorta. If we use the same 15% income tax rate above, you actually have to earn $4.70 to pay for that $4.00 coffee. Or $117 to buy a $100 pair of shoes. Or $23,529 to buy your $20,000 car (and this is all before you pay sales tax :().

Just something to think about…

In my next post, we’ll discuss how this principle applies to a business. It is critical to understand!

PS – If you have benefited from Bonehead Business, please share it with your friends!

PS II – I recently created a Facebook page, visit and like it here. 

 

Photo credit: jirotrom / Foter / CC BY-NC-ND

4 thoughts on “How a Penny Saved is worth MORE than a Penny Earned

  1. I love this post. No truer words have been spoken. I would suggest that this concept is even more powerful in business where the cash you keep is smaller relative to wage earning. I am looking forward to the nest post!

  2. I “was” enjoying a white mocha when I started reading this. ….. I’ll forever add 15% to what I think I’m spending on a coffee. Thanks Ryan…..I think. :)

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