“A penny saved is a penny earned” is a famous phrase often attributed to Benjamin Franklin. However, Ben never said these exact words (at least according to the Franklin Institute, and if he did, he would be wrong! 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.
Why a Dollar Saved is Better than a Dollar Earned
Unless your income is 100% passive, you are trading your time for money. The time that you could use to do something else more worthwhile and fulfilling.
Each additional dollar you earned is taxed at your marginal tax rate, along with State income tax, Social Security tax, and Medicare tax.
Here is what most average Americans can expect:
|Average IRS Marginal Tax Rate||23%|
|Average State Income Tax||5%|
For most of us, we are taking home just 64 cents on every dollar we earned at the marginal tax rate. So every dollar saved is about the same as $1.55 earned.
Every dollar saved, is about the same as $1.55 earned
3. Inflation of Lifestyle
This one is perhaps the most important of the three. People who earn more tend to spend more. You may have experienced this lifestyle inflation yourself — e.g., when you get your yearly raises, somehow you automatically found ways to spend that extra money.
It pays to be frugal and start implementing some frugal living ideas because you have to earn almost 2 dollars to replace each dollar you spent. This is just a precaution against being wasteful with your money. As good as saving money is to your finances, you will reach a limit — as such, it is a good idea also to grow your income.
You can learn how to earn more money with these income ideas.
Here are a few more related articles from other blogs:
- A Penny Saved is Worth More Than a Penny Earned at Cash Money Life
- Save More vs. Earn More: A Dollar Saved Is Two Dollars Earned at My Money Blog
- Spend less than you earn – the wrong way to think at Brip Blap
Pinyo Bhulipongsanon is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.