A Dollar Saved is Better than a Dollar Earned

Benjamin Franklin popularized the expression: “A penny saved is a penny earned.” However, Ben got this one wrong because a penny saved is much better than a penny earned! This is one reason why being frugal is such an important aspect of wealth building. Of course, frugality on steroid is even better — i.e., save more and earn more.

Thomas Stanley and William Danko in The Millionaire Next Door

“Being frugal is the cornerstone of wealth-building.”

So why is a dollar saved better than a dollar earned?

1. Time

Unless your income is 100% passive, you are trading your time for money. Time that you could use to do something else more worthwhile and fulfilling.

2. Taxes

Each additional dollar you earned is taxed at your marginal tax rate, along with myriad other taxes. In fact, My Money Blog has a great pictorial demonstration of your take home pay after taxes. For most of us, we are taking home just a bit less than 60 cents on every dollar we earned at the marginal tax rate.

3. Inflation of Lifestyle

This one is perhaps the most important of the three. People who earn more tends to spend more. You may have experienced this lifestyle inflation yourself — e.g., when you get your yearly raises, somehow you automagically found ways to spend that extra money.

So it pays to be frugal and start implementing some frugal living ideas. While you are at it, also learn how to earn more money with these alternative income ideas.

Here are a few more related articles from other blogs:

About the Author

By , on Mar 21, 2008
Pinyo
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

Leave Your Comment (14 Comments)

  1. Pete says:

    I don’t know about you guys but i always found that in order to save a dollar I usualy had to earn 10,so I always told my kids a dollar saved is 10 earned.

  2. Vinod Kumar says:

    Good tip , but in india , we say One Rupee Saved Is Better Than One Rupee Earned

  3. Bob says:

    Are you guys serious..

    I’m pretty sure he meant.. a penny saved is a lot better then working for a penny to replace the penny you just spent.

    So save your pennies and stop working so hard! lol

  4. Scott says:

    When Ben Franklin said ‘a penny saved is a penny earned’, he wasn’t speaking of banks, he was speaking of purchases.

    If you make $100, you can buy 100 items at $1 each. If you save $1, you can buy an extra one, or 101 items.
    If you earn $1 more, you make $101, so now you can buy the same 101 items.

    I don’t know why schools all around the world teach this quote’s meaning incorrectly.

  5. Nirav says:

    talking about dollars, check out silver peace dollars. they’re currently worth about $15-20 (unless you have a really rare one, then they’re worth substantially more).
    http://frenchgoldcoins.info/go.....ries-coins

  6. Jesse says:

    True story about taxes, its more like a dollar saved, is $1.61 earned.

  7. Pinyo says:

    @Jerry – Great point about the value of time.

    @Mark – I guess you’re right if you want to put it that way.

    Thank you for your comment about the new look. I am glad you like it. It’s my first homemade theme and I am very happy with it.

    @AJC – Right and that’s why I said it’s even better to save more and earn more. That said, I do like the strategy you outlined — 50% to improve your standard of living and 50% to boost savings.

    @Deamiter – :-) Ah, so technical…yes invest!

    @Anthony – I am ignoring my raises because they are negligible. Does that count? :-)

    @Minimum Wage – No idea…

    @Jonat – “But in choosing which is better then there really is no better option because it is how you use the money that will matter the most.” — Exactly.

  8. JonatsGonats says:

    I would not mind really having both earning money and saving at the same time.
    But in choosing which is better then there really is no better option because it is how you use the money that will matter the most.

    What if your saved money will be spent on paying for the dinner date you have later this week while the money you earned in the coming days will be spent for paying utility bills.

  9. Minimum Wage says:

    What was the inflation rate in Ben’s time?

  10. Anthony Imperioli says:

    Aren’t they trying to get rid of the penny?
    JK.
    The best thing to do is ignore any raises. It seems when someone gets a raise, it enters their subconscious and they feel more at ease when spending. It’s the same spending pattern, but just accentuated.

  11. Mark says:

    I don’t understand how Ben got the expression wrong. In order to save a penny, first you have to earn it. Then you can save the penny and grow it which is when the fun begins.

    I think Ben got it right because he was trying to help America understand what it takes to become financially free.

    By the way, love the new look.

  12. Jerry says:

    I think the biggest point you make here is the exchange of time for wages… this is why I believe that passive income is by far the best insurance for building wealth, even if it comes a little at a time. Selling a finite (and most valuable) resource like our time for money (especially if it is in a despised or barely tolerated job) is definitely not something for happiness over the long run!

  13. Deamiter says:

    I know, I too am missing the later points of your post, but a penny saved is actually worth LESS than a penny earned due to inflation. The only way a penny can become worth more is if you invest it — so a penny invested is worth more than a penny earned, but a penny saved can only increase in value in a deflationary environment.

  14. AJC says:

    True, but you can’t SAVE your way to a fortune … the amount you can save is CAPPED at 100% of what you earn (for most people, at something a lot less … like 10% of what you earn).

    If you want to become financially free, you must have a frugal mind-set and save … but, even more important you MUST increase your earnings.

    Here’s where savings/earnings come together: if you are (just managing to save something like 10% – 20% of what you currently earn, try increasing your earnings (more hours, second job, blogging, part time business/consulting, etc.) and saving at least 50% of the additional income these bring in.

    Combining an earning/saving strategy can accelerate your life savings …

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