A Penny Saved is Worth More Than a Penny Earned

You’ve probably heard the old saying, A penny saved is a penny earned.

As we use that saying today, it means that saving a penny, by making sure always to use money efficiently and avoid unnecessary spending, is as good as earning a penny.

In other words, if you earned $100 and spent $75 to buy something you needed, then you would have $25 left.  But if you were able to buy the exact same thing for $74, then you would have $26 left — which would be the same as if you earned $101 and had to spend $75.  So, to update the old saying: A dollar saved is a dollar earned.

save_vs_earnHowever, let’s think about what happens if you actually earned another dollar.  Say that you’ve been earning $100 a day and that amount is increased to $101.  If we’re talking about your gross (before taxes) income, then that one-dollar raise is going to increase your take-home pay by less than $1.  You might get to keep 85¢ of it, or 75¢ of it, or some other amount, depending … but you won’t get the entire dollar.  Another way of looking at it is that to get an increase of $1 in your take-home (after taxes) pay, you need to earn something like $1.25 or $1.35. or more.

On the other hand, if you are able to decrease your spending, you get to keep 100¢ out of every $1 you don’t spend.  Thus, every additional dollar in savings is worth more than an additional dollar of income.


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