Frugal Living 

A Penny Saved, Is A Penny And A Third Earned

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“A penny saved is a penny earned.”
       — Benjamin Franklin

That oft quoted Benjamin Franklin line, while good intentioned, is actually inaccurate nowadays.

Can you guess why?

Chances are, you can and you said taxes.

If you are in the 25% tax bracket, every additional penny you earn will be taxed at that rate. This doesn’t even take into account local and state taxes (though it also excludes deductions). When you save a penny (and here are a 100 money saving tips), you’ve saved the whole thing! Thankfully, the government hasn’t yet discovered a way to directly tax savings (though one would argue that inflation is essentially a tax on savings).

You can’t blame Poor Richard though, he was never alive to see a personal income tax. The first personal income tax was first levied in 1861 to help pay for the Civil War.

So, the next time someone says “A penny saved is a penny earned,” be sure to remind them that we have to pay taxes on our earnings. A penny saved is actually worth a penny and a third earned.

(Photo: Dystopos

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7 Responses to “A Penny Saved, Is A Penny And A Third Earned”

  1. Brandon says:

    I dunno, I have never been past the 15% bracket (marriage and tax credits ftw).

  2. Vilna says:

    It is also easier to save an extra penny than to earn an extra penny. – You say, “Thankfully, the government hasn’t yet discovered a way to directly tax savings.” I beg to differ. I am paying taxes on my interest income directly to the US government since I have to report my interest income on my tax return and it gets taxed at my marginal income tax rate.

  3. Actually, Old Ben wrote “A penny saved is two pence dear.” So I guess he was anticipating even higher taxes.

    • Jim says:

      Hmmmm, I guess I’ve just heard the more common mis-quote!

      Now the question is, what does “A pin a day’s a groat a year” mean?

  4. frugalCPA says:

    Later, the supreme court ruled federal income tax unconstitutional (Pollock v. Farmers’ Loan and Trust Company), so congress wrote the 16th amendment to make it constitutional.

    Interesting stuff.

  5. Jackson says:

    Yeah, I’ve always lived by this policy.

    Also whenever I look at prices I tend to mentally add in the tax as well. So many people seem to disregard it…

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