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  • Writer's picture Treavor Dodsworth CFP®, CPA, CKA®

#28 - Penny Saved > Penny Earned


Penny Saved > Penny Earned

“A penny saved is a penny earned.” Is it? In at least one respect, a penny saved is much more valuable than a penny earned. Between federal income tax, state income tax, social security taxes, medicare taxes, etc. someone could easily end up with a marginal tax of 35%. Would you come out ahead by saving $100 or earning $100? If your earned income was subject to the above marginal rate, you would have to earn about $154 to equal your $100. I will fully admit that this is nitpicking. Also, I am sure the phrase “a penny saved is a penny earned” is one of many phrases I will annoy my son with at some point… and then probably annoy him even further by explaining why that isn't always the case. In many situations though, a penny saved is more valuable than the penny earned when you take into account taxes. Never forget to account for taxes. They are one of the most significant expenses you will pay over your life.

 

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