<< Back to all Blogs
Login or Create your own free blog
Layout:
Home > Save Before You Earn
 

Save Before You Earn

November 29th, 2006 at 12:43 am

Here is a simple question to ask yourself. If you were given the choice of earning an extra $115 a month or painlessly saving $100 a month, which would you choose? While the $115 more a month may appear to be more money, the financially savvy choice would be choosing the $100 in savings. In fact, the correct answer isn't even a close call.

Benjamin Franklin's famous saying "a penny saved is a penny earned" needs to be updated to the reality of today. The problem is that back when he made that statement, there weren't a lot of government agencies and programs claiming their share of your hard earned money. That is not the case today and why saving money is actually about twice as effective as earning money for your bottom line.

When you take into account all the costs associated with earning money, a dollar saved is actually worth $2 earned today. That means every $5 saved is $10 earned and every $100 saved is the same as $200 earned. It also means that saving any amount of money is 100% more efficient than earning that same amount.

What makes saving money so much more valuable than earning it? It comes from the fact that the money you save is from after tax dollars while the money you earn still hasn't had the taxes taken out. When you calculate the federal, state and local taxes your must pay in addition to social security and Medicare deductions, a large portion of every $1 your earn doesn't end up coming home with you. Add on the costs associated with work such as clothing and commuting and it ends up that you get to take home roughly $0.50 out of every $1.00 you earn. The money you save, however, has already had all those expenses taken out.

In addition, you need to take into account that saving money often takes much less time than earning it. Take, for example, the purchase of a new high definition TV. If you went down to your local appliance store on the day you decided to purchase a TV, it is likely that you would come home having paid full retail price. Simply spending an hour or two on the Internet or calling all the stores in your area to see if there were any sales or other discounts available to get the best price on the high definition TV would likely save you $200 or more. In this scenario, that hour on Internet or phone would be the same as earning $400 in you job...that's right, $400. If you make $10 an hour at your job, your hour on the phone was equivalent to working an extra 5 full days on an 8 hour shift. That is the power that taking the time to save can have.

Here is another perspective to consider. What would your answer be if your boss said, "I've been thinking a lot lately. You have been working really hard lately, but you come to work every day with that Starbucks coffee and it distracts everyone. So if you will simply make your own coffee and bring it to work in a thermos instead of buying it each day, I will give you a $2,400 bonus this year." Would you take the offer? You can because the amount you save would be equal to earning an extra $2,400 a year.

When you begin to view money in this light, taking a few hours to plot out ways to save money can result in a much higher return than getting a significant raise at work. If you are able to save $5 a day, you have done the equivalent of receiving a $300 a month raise or a $3,600 a year raise. Anyone can achieve $5 a day in saving with a little effort and with much less time and sweat than you would need to put in at your regular job.

Don't get me wrong. I am no way implying that you should not try to maximize your earnings. In fact, you should be attempting to do both your job and beginning a side business. But just because you're earning more doesn't mean that you should neglect any savings that you can painlessly achieve because those savings are worth twice as much as your earnings.

0 Responses to “Save Before You Earn”

Leave a Reply

(Note: If you were logged in, we could automatically fill in these fields for you.)
*
Will not be published.
   

* Please spell out the number 9.  [ Why? ]

vB Code: You can use these tags: [b] [i] [u] [url] [email]