Pennies Saved and Earned

You've probably heard the saying "a penny saved is a penny earned." Makes, sense. A penny is a penny, right? It's actually not exactly true. In most cases a penny saved is actually better than a penny earned. “What?” you ask? Well, thanks to federal taxes, earning a penny typically leaves you with only a fraction of your hard-earned coinage, while saving a penny post-tax leaves you with an actual full, shiny, copper coin. In fact there are many benefits to saving versus earning, so let's take a look.


That penny you earn today is subject to taxes, as we mentioned, but it could be subject to more than just the federal taxes. If you live in an income-tax state (almost all of them), you also pay taxes on top what the feds take. So, if you pay 25% income taxes (like many US citizens), you may pay an additional 8% state income tax, depending upon the state in which you live.

Supposing your tax rate is 33%, then a dollar earned is only worth 67 cents, while a dollar saved is $1.00. In fact at that tax rate you would have to earn $1.50 just to match the value of saving that dollar. Makes you think twice about how to spend your money, doesn't it?


There's also something to be said for instilling yourself with a sense of frugality. Once you start recognizing how valuable saving is, it becomes easier to avoid those major purchases that can really set you back. You might have to earn $1,500 to pay for that $1,000 television.

Work Hard for Your Money

The term, “I work hard for my money,” is just as important when it comes to savings. You do work hard for your money, so in return, you should make it work hard for you. Once you have earned that $1,000 post-tax, putting it in a savings account or investment can keep you above that pesky inflation and earn you more than a few pennies (with the right investment or account). If you spend that money, you can't make it work for you.

All in all, a penny saved is worth way more than a penny earned. The next time you are tempted to dip into your savings account, remember that you have to work longer to earn that money back. If you borrow $100 from your savings account, you must earn $150 to pay back the money.

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Anonymous's picture

Ravi Gupta wrote:

Fri, 03/18/2011 - 12:30 Comment #: 1

I agree with your post completely. Unfortunately these days with the markets being so volatile you can't always beat inflation let alone meet it.
I don't believe that the saying "a penny saved is a penny earned" means much to most people. It is my understanding that many people have no conept of savings. It's a bit funny because so many live in the moment with thier spending without giving a thought to the future.

-Ravi G.

Anonymous's picture

Jane wrote:

Fri, 03/18/2011 - 17:01 Comment #: 2

I'm a good saver but the interest rates are crap these days. I basically don't pay much attention to the interest I earn? save? and just think of it as bonus money:)

Christa Palm's picture

Christa Palm wrote:

Sat, 03/19/2011 - 23:11 Comment #: 3

Ravi and Jane, I agree with both of you -- interest rates are horrible right now and don't even beat inflation. Other investment options beyond savings accounts may be the best way to at least beat inflation and save those pennies!

Anonymous's picture

MoneyCone wrote:

Sun, 03/20/2011 - 14:32 Comment #: 4

Lovely post Christa! You drive home a point very nicely!

Christa Palm's picture

Christa Palm wrote:

Tue, 03/22/2011 - 18:16 Comment #: 5

Thanks, MoneyCone!

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The Saved Quarter Challenge: Totally Money Carnival Edition wrote:

Mon, 04/04/2011 - 15:45 Comment #: 6

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Totally Money Blog Carnival #13 | Totally Money Blog Carniva wrote:

Fri, 04/08/2011 - 22:07 Comment #: 7

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Totally Money Blog Carnival #13 - TotallyMoney wrote:

Wed, 06/22/2011 - 09:04 Comment #: 8

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