“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.