We’ve all heard the saying, “A penny saved is a penny earned,” haven’t we?
And in our quest to be rich (or even just to not be poor), we’re more interested in increasing our income than we are in reducing our spending. After all, a bigger income is bragworthy, but how much you saved by (gasp!) not buying something you really didn’t need isn’t much to talk about. Now is it?
But the math is firmly in the court of the saver, not the earner. Consider this:
Let’s say you get a raise of $1200 per year. An extra $100 a month to spend–yipee!
But wait a minute! You take a look at your paycheque, and the extra hundred dollars seems to have shrunk, hasn’t it? Even if you’re a minimum wage earner, the government is going to take a bite right off the top! Let’s say you’ve got a very modest 20% in tax and other deductions. Now that hundred dollars has turned to a mere $80.
Still, that’s money you can bank, or more likely spend. Because human nature almost impels us to raise our standard of living rather than saving the extra. So now you’re spending that $80. Since your basic needs were (hopefully) covered by your former paycheques, chances are you’re purchasing extra consumer goods that you’ve wanted but not been able to afford.
Still, an extra $80 can get you…
In Ontario, with HST at 13%, it can get you just under $71 worth of goods.
By the time you’ve spent the money, that $100 raise has shrunk by a whopping 30 percent!
Now consider the saver. Doesn’t get a raise, poor woman, but she manages to trim $100 off her budget. That’s $100 free and clear, as opposed to the earner’s $71. If she uses it to pay down her 20% interest credit card, she’s even better off, because there are not many investments that can pay better than that!
So a penny saved turns out to be a whole lot better than a penny earned, which is why my next few posts are going to be about ways I’ve found to save money.
Until then, don’t break the bank!