Double The Worth Of Your Money – Save Before You Earn

a penny saved is 2 cents earnedHere is a simple question to ask yourself. If you were given the choice of earning an extra $115 a month or painlessly saving $100 a month, which would you choose? While the $115 more a month may appear to be more money, the financially savvy choice would be choosing the $100 in savings. In fact, the correct answer isn’t even a close call.

Benjamin Franklin’s famous saying “a penny saved is a penny earned” needs to be updated to the reality of today. The problem is that back when he made that statement, there weren’t a lot of government agencies and programs claiming their share of your hard earned money. That is not the case today and why saving money is actually about twice as effective as earning money for your bottom line.

When you take into account all the costs associated with earning money, a dollar saved is actually worth $2 earned today. That means every $5 saved is $10 earned and every $100 saved is the same as $200 earned. It also means that saving any amount of money is 100% more efficient than earning that same amount.

What makes saving money so much more valuable than earning it? It comes from the fact that the money you save is from after tax dollars while the money you earn still hasn’t had the taxes taken out. When you calculate the federal, state and local taxes your must pay in addition to social security and Medicare deductions, a large portion of every $1 your earn doesn’t end up coming home with you. Add on the costs associated with work such as clothing and commuting and it ends up that you get to take home roughly $0.50 out of every $1.00 you earn. The money you save, however, has already had all those expenses taken out.

In addition, you need to take into account that saving money often takes much less time than earning it. Take, for example, the purchase of a new high definition TV. If you went down to your local appliance store on the day you decided to purchase a TV, it is likely that you would come home having paid full retail price. Simply spending an hour or two on the Internet or calling all the stores in your area to see if there were any sales or other discounts available to get the best price on the high definition TV would likely save you $200 or more. In this scenario, that hour on Internet or phone would be the same as earning $400 in you job…that’s right, $400. If you make $10 an hour at your job, your hour on the phone was equivalent to working an extra 5 full days on an 8 hour shift. That is the power that taking the time to save can have.

Here is another perspective to consider. What would your answer be if your boss said, “I’ve been thinking a lot lately. You have been working really hard lately, but you come to work every day with that Starbucks coffee and it distracts everyone. So if you will simply make your own coffee and bring it to work in a thermos instead of buying it each day, I will give you a $2,400 bonus this year.” Would you take the offer? You can because the amount you save would be equal to earning an extra $2,400 a year.

When you begin to view money in this light, taking a few hours to plot out ways to save money can result in a much higher return than getting a significant raise at work. If you are able to save $5 a day, you have done the equivalent of receiving a $300 a month raise or a $3,600 a year raise. Anyone can achieve $5 a day in saving with a little effort and with much less time and sweat than you would need to put in at your regular job.

Don’t get me wrong. I am no way implying that you should not try to maximize your earnings. In fact, you should be attempting to do both your job and beginning a side business. But just because you’re earning more doesn’t mean that you should neglect any savings that you can painlessly achieve because those savings are worth twice as much as your earnings.

This entry was posted in Making Money, Personal Finance, Saving Money. Bookmark the permalink.

7 Responses to Double The Worth Of Your Money – Save Before You Earn

  1. I guess it depends on how you define “earnings.” I define earnings as money after taxes, social security, medicare, etc. because that’s really what you are earning. In that light, I’ll take the $115 more.

    I’ve found that I’ve done most of the “savings” that I can do painlessly. I’m at the point where saving $100 is painful.

    I’m not sure I get the Starbucks math. I’m not a coffee drinker, but $2400 in savings sounds like it’s $10 a day (240 work days = roughly 5 work days x 50 weeks). I think my fiancee spent about $2.75-$3.50 the last time she was there. So it would seem like that would be something like $750 a year or so. That said, my fiancee makes her own coffee and brings it to work each day. I think it’s a smart and great move, I just see a lot of exaggerated Starbucks talk in the blogosphere and I don’t get the math behind it.

  2. Jaime says:

    I also have my doubts about the Starbucks(R) math. But I think that we also have to consider the time and gas that takes to drive to Starbucks(R). Great post, thanks,


  3. pfadvice says:

    This is how I arrived at the number. Since I don’t drink coffee, I went by the drink that my wife gets which is $4.75 – that comes to $1235 ($4.75 x 52 weeks x 5 times a week) and since this is a comparison of what saved money would be if you earned the money it gets doubles to $2470 ($1235 saved is equivalent to getting a $2470 bonus) – cost of own coffee and savings in travel (if any) I made a guesstimate at $2400

    If the coffee is $2.75, then the savings would be $715 which would be equivalent to approximately a $1400 bonus

    If the coffee is $3.50, then the savings would be $910 which would be equivalent to approximately a $1800 bonus

    You can substitute the real number in for yourself…

  4. I see where the math comes from now, but I’m still not sure I give half my gross money to taxes. I mean I might by the time you factor in sales or service tax, but it would seem to be closer to 33-37%.

    I couldn’t find firm Starbucks prices, but I did see that in 2004 it was $2.25-3.00 depending on your cost of living – That said, I would expect that your wife might take some vacation and/or have some holidays, as well.

    Granted things could go up in two years, but I would think that in a lot of cases it’s possible to get a small drink for about $3. If that’s the case, and the tax is around 35% as I suggested, it would be the equivalent of about $1150.

    As for the time and gas to get to a Starbucks, one is on my fiancee’s way to work (walk from public transit), so I don’t think there’s too much of either involved for everyone, though there might be some for the average person.

  5. pfadvice says:

    A lot of it depends on where in the country you live. Take your federal tax rate, then add in state taxes (high here in CA) and local taxes (county and city), plus add in the social security tax and medicare and it gets up there real quick…it’s probably slightly lower that 1:2 ratio, but pretty darn close where I live. Now it will be a much different ratio if you live in a state that has no taxes, but it’s probably a lot more than you think (since it is deducted out of your paycheck, most people don’t pay close attention to all of it) – the numbers were derived from where I live (since that is what I know) and will vary depending on where you live. They aren’t supposed to be definitive numbers (numbers will always vary depending on where you live and your lifestyle so you always need to plug them in for your situation) – it is an example of a different way of looking at your money using my situation as an example.

  6. twins15 says:

    That Benjamin Franklin was one smart d00d!

  7. Norma Walker says:

    When I first read about buying coffee every day I couldn’t make sense of all the money I would save. We didnt have a Starbucks and I could buy a cappicino that tasted good for $.89 at our local dairy convience store. Since I don’ work this is once an occasional treat,

Leave a Reply

Your email address will not be published. Required fields are marked *