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
Good point! Never thought of it… but it’s completely true!
Everyday Tips 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.
Interesting, Len. So basic but surprisingly not obvious to many.
Best 100-word post I’ve seen:)
Bret @ Hope to Prosper says
You forgot about Sales tax.
A penny spent is only .9125 cents here in Cali.
Joe Plemon says
I had to read this just to see if it was really a 100 word post. You proved that you are able to save words as well as pennies. Tax free.
Mr Credit Card says
that may be true. But you can only save on what you spend (so there is a cap). While earnings could theoretically be infinite (or at least the potential)
Barb Friedberg says
Len, Personally, I like to earn more and save more. That way I’m definitely covered. This article was beautifully written.
Khaleef @ KNS Financial says
Great point! This is why it pays to take care of huge gaps in your finances. Then once you hit that cap, ramp up the income!
Plus, you can do cool stuff with pennies, like this: http://www.apartmenttherapy.com/ny/tile-stone-countertops/penny-tile-floor-at-the-standard-hotel-notcotcom-088953
Impressive – I have trouble saying anything in 100 words!
Saving is good, but savings can be taxed. Some states have (or used to have) an intangibles tax (tax on money sitting in savings). Nasty stuff!
I actually found this more entteriainng than James Joyce.
Len Penzo 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.
Jennifer Barry 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!
Len Penzo says
Ha! It’s tough for me too. I think a savings tax would be really cruel to folks on a fixed income.
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)
A penny saved is only better than a penny earned when your future ISNT A HOWLING BLACK HOLE!
Doable Finance says
Doable Finance 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.
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.
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.
Michael in SoCal says
Great post – I’m gonna steal it and put it as my facebook status, with a link.
Neil Parsons says
Here in Canada the penny was official withdrawn from service on February 4, 2013. One reason was it cost the Canadian mint more than a cent to produce the coin. I have to say it does make the coin purse a lot lighter. http://www.cp24.com/news/mint-officially-ends-distribution-of-canadian-penny-1.1141740
Cherleen @ My Personal Finance Journey says
“…finding ways to save by cutting your spending is actually more cost effective than earning money.”
I definitely agree! Unfortunately, many people do not realize this fact.
My Financial Independence Journey says
Actually, a penny picked up off the ground is worth more than either a penny saved or earned. And it’s value goes up as your effective tax rate increases. Because at no point has it been subjected to the litany of Federal, State and Local taxes.
Attributed to Benjamin Franklin, not some “Quaker Oats guy.”
Some history on the origin of this term:
Len Penzo says
Um … that was a joke, joe. But thanks for the link!
Len: I really enjoyed your article. Very clever!
I always look for opportunities to save more!