The most common reason that people give for not saving money is, “I just don’t make enough”. From a perspective, this is almost always true. It’s been said that your lifestyle will rise to meet (or exceed) your income. If that’s the fact, then no one really ever makes enough money, and they never will. But those of us who are conscience about our finances understand that it is important to budget savings first and then live within our means. Otherwise, there is never enough left over. I’ve done some simple math to compare the virtues of cutting expenses vs. making more income, so if you’re one of those people who are just waiting until your next pay raise to start saving, you may want to pay attention.

          Let’s assume that Person X is currently making a steady salary. He finally has his life in order and his budget is perfectly set so that he has exactly what he needs to pay his bills. He is only waiting until his next pay raise so that he can start saving. Let’s also assume that person X also has the uncanny ability not to be tempted to increase his lifestyle when the raise comes. That super power alone is enough to show that person X better belongs in a comic book than in the real world, but still, let’s just assume. At the beginning of the year, Person X is given a salary raise of $10,000 per year. Utilizing his super powers, he puts %100 of his pay into savings. But there is one problem, taxes. Person X doesn’t get to keep everything that he makes. Assuming that he gives 20% of his income back to the government he only gets to take home around $8,000 more per year.

          Now, let’s assume that Person Y is in the same situation. The only difference is that instead of waiting for his next pay raise, he changes his lifestyle to allow him to start saving now. He sells his newer car and buys an older model for cash; he cancels his satellite TV and subscription to “Yacht Magazine”, he starts clipping coupons and buying only what he needs and at the end of the year, he is able to budget $10,000 per year to go directly into savings. Sense his budget was based on his take home pay and not his salary; he doesn’t have to figure taxes into the equation. He has effectively given himself a 20% return on his savings over person X, and the only difference is the taxes that he didn’t have to pay on the money he saved.  As much as I would like to start computing the interest that each person earns over the years, I think that it’s clear who is going to come out ahead.

           The numbers that I chose for this example were picked to make the math simple but the point is clear. A penny saved is worth more than a penny earned because you don’t get to keep the entire penny that you earned. In fact, depending on your tax bracket, a penny saved may be worth 1.1, 1.15 or even 1.4 (or more) pennies earned, and when those pennies turn into dollars, the difference is astounding.