100 Words On: Why a Penny Saved Is More Than a Penny Earned

I think it was the Quaker Oats guy who famously declared that a penny saved is a penny earned. However, because of taxes, a penny saved is actually worth more than a penny earned. To illustrate, if you happen to be in the 10% tax bracket, every taxed dollar you earn is worth only $0.90; tack on FICA, state and other taxes and it’s worth even less.

The bottom line: Although striving to continually increase your income should always be your first goal, finding ways to save by cutting your spending is actually more cost effective than earning money.

Photo Credit: stevendepolo

Comments

  1. 2

    says

    Very interesting Len. What if I earn my penny under the table though? :)

    Some people earn (or win) a lot of money, and find themselves penniless because they never learned the art of saving.

  2. 10

    says

    @Nona: Hola, Nona! Si, es verdad! Gracias!
    @Everyday: If you earn your penny under the table, consider yourself fortunate — just don’t tell the IRS. Wait, you just did.
    @Squirrelers: Thanks, Wise Squirrel! This is going to be a weekly feature here.
    @Bret: I know, but I only had 100 words. ;-)
    @BIFS: Fooled ya!
    @Joe: Oooh, I like that! Eloquently said, as always, Joe.
    @Mr.CC: Yep. That’s why I said it we should strive to earn money first! I wanted to get your point in, but that 100 word limit is a real pain. LOL
    @krantcents: I like you, krantcents. For some reason you remind me of another blogger whose initials are FS.
    @Barb: Me too. Thank you for the kind words, Girlfriend. :-)

  3. 15

    says

    @Khaleef: Well said. While it’s better to ramp up your income, sometimes it may be very difficult to do so and out of our control (to some extent). The nice thing is cutting expenses is *always* within our control.
    @Jenna: That’s cool! Thanks for the link! :-)
    @Marie: I know. Never underestimate the power of politicians to tax something.

  4. 16

    says

    Nice post, Len! It’s hard for me to say anything in less than 500 words. ;) It’s important to not be “penny wise and pound foolish” though. I sure hope Bernanke doesn’t come up with a savings tax to spur consumption!

  5. 18

    says

    First time visitor. Came from a post by Oblivious Investor.

    The sales tax only comes into question if you spend the savings on a taxable item. :O)

    Savings and earnings are correlated, but if you drop your energy bill, you can put that in the bank. :O)

    Finally, you included a picture. Since a picture is worth a 1000 words, you are at 1100 words. :O)

    Good stuff.
    cd :O)

  6. 21

    says

    Yap! the concept gets a lot clearer when you do your own taxes. However, for the rich, there are many loopholes they benefit from when they save what could be going to the Federal Treasury. The tax system is designed such that the so-called 1% can take advantage from.

  7. 22

    says

    So true! Len, I think you understate what a penny earned is actually worth. After Federal and State Income taxes, Fica, Medicare and sales tax I think that every dollar I earn is only worth .65 cents. What a depressing thought.

  8. 23

    Sassy Mamaw says

    I love this post, Len. It is so true. Between taxes and the interest earned on savings, these 100 words will encourage people to double check that they’re saving as much as possible.

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