You’ve probably heard the old saying, A penny saved is a penny earned.
As we use that saying today, it means that saving a penny, by making sure always to use money efficiently and avoid unnecessary spending, is as good as earning a penny.
In other words, if you earned $100 and spent $75 to buy something you needed, then you would have $25 left. But if you were able to buy the exact same thing for $74, then you would have $26 left — which would be the same as if you earned $101 and had to spend $75. So, to update the old saying: A dollar saved is a dollar earned.
However, let’s think about what happens if you actually earned another dollar. Say that you’ve been earning $100 a day and that amount is increased to $101. If we’re talking about your gross (before taxes) income, then that one-dollar raise is going to increase your take-home pay by less than $1. You might get to keep 85¢ of it, or 75¢ of it, or some other amount, depending … but you won’t get the entire dollar. Another way of looking at it is that to get an increase of $1 in your take-home (after taxes) pay, you need to earn something like $1.25 or $1.35. or more.
On the other hand, if you are able to decrease your spending, you get to keep 100¢ out of every $1 you don’t spend. Thus, every additional dollar in savings is worth more than an additional dollar of income.
