Posts Tagged ‘tax’

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A penny saved is more than a penny earned

August 27, 2008

This blog is dedicated to frugality: in other words, we are thinking about making the best of what we already have, rather than trying to get more. And yet, isn’t getting more a worthwhile goal? Why shouldn’t we put as much effort into making a dollar as saving a dollar?

There are two reasons.

First, tax. Every dollar you earn is taxable. So if you earn one extra dollar, you’ll keep less than one dollar. Maybe quite a lot less, if you earn enough. But if you save one dollar out of income which has already been taxed, that whole dollar is yours. If a few seconds of self-control save you a dollar, that’s a lot easier than working for it.

It’s worth figuring out what your net after-tax earnings per hour are. Then when you contemplate a potential saving, you can say “it would take me x hours to earn that money.” If you only think of savings at their nominal price, you’re leaving out the chunk of your earnings that goes for tax.

Second, this blog wants you to lead a more fulfilling life. A life where you only do things that you think are worth doing for their own sake. Sadly, many of the things that would get you an extra dollar demand you do things you don’t want to do. This would be the Tom Sawyer definition of work:

Work consists of whatever a body is obliged to do, and […] Play consists of whatever a body is not obliged to do.

(If you can get extra dollars doing things you want to do, you go for it and don’t let anyone hold you back).

If you have to work all the hours God sends to make those extra dollars, that’s not necessarily the best use of your time, if you have other goals than accumulating money. We all know that time is money—the corollary is that money is exchangable for time. I am mingy about the exchange rate. In this blog, we will assume that you are too.