Benjamin Franklin by way of Poor Richard’s Almanac was the source of a number of great sayings. “Never confuse motion with action” is my favorite. But there is one that Ben got wrong, or at least it has become wrong. It’s the most famous one. “A penny saved is a penny earned”.
Let’s look at that. Let’s say you get a $1,000 a year raise at work. But out of that $1,000 you’re going to have to pay federal income tax, state income tax, social security, medicare, disability insurance and unemployment insurance. You’ll probably have more than $500 left, but not much more. Money you save, however, is not subject to any of those taxes. So the reality is that a penny saved is much closer to two pennies earned.
Keep that in mind the next time you decide to make a significant expense, particularly an ongoing one.