A Penny Saved Is Worth More Than You Think: The Real Value of Saving
Grandma always said, “A penny saved is a penny earned.” But what if she was selling herself short?
Turns out, she may have been wiser than she knew. When we take a modern look at how taxes, donations, and real-world spending affect our income, we discover something surprising: a penny saved might be worth two pennies earned (or more).
The Origins of Penny-Wise Thinking
My grandmother was born in 1922 and grew up during the Great Depression. Her frugality was legendary. She spoke of eating raw potatoes and couldn’t stand to see anything wasted. When we visited her, we’d have to secretly throw out expired food — she just couldn’t bring herself to waste anything.
Her mantra was simple: “If you don’t spend a penny, you’ve saved it. That’s as good as earning it.”
But what she didn’t realize was how saving money can actually have a much greater impact than earning it, especially once we factor in taxes and hidden costs.
Why Saving $15 Can Be Like Earning $32
Let’s look at a real-life example.
My kids sell these “starving student cards” — loaded with discounts, coupons, and BOGO (buy one, get one free) deals. One of them offers a free pizza when you buy one for $15. Seems like a nice perk, right? Saving $15 is the same as earning $15… right?
Wrong.
In reality, I’d need to earn much more than $15 to have $15 of usable spending power.
The Hidden Cost of Spending: Taxes and Deductions
Let’s break it down:
Sales Tax Adds Up
Where I live, buying prepared food adds:
- 4.85% state tax
- 1.1% city tax
- 1% prepared food tax
- 1.5% county/transit tax
That turns a $15 pizza into $16.27.
Charitable Giving Reduces Spending Power
I donate about 10% of my income to causes I care about. To afford $16.27, I really need to earn $18.07 before even considering federal or state income tax.
What About Income Taxes?
Let’s add it all up:
- Federal marginal tax rate: 24%
- State income tax: 4.55%
- FICA (Social Security + Medicare):
- Employee portion: 7.65%
- Employer portion (which I also pay as self-employed): another 7.65%
Total tax burden: 43.85%
So, to take home $18.07, I’d have to earn a staggering $32.18.
Saving Is More Powerful Than You Think
So when I get that free pizza and save $15, I’m really saving the equivalent of $32.18 in earnings.
A penny saved isn’t just a penny earned — it might be worth two or more.
That’s why smart spending and saving strategies — including using coupons, discounts, and avoiding unnecessary purchases — can multiply your financial power in ways that income alone cannot.
Final Thoughts: Grandma Was (Even More) Right
So yes, Grandma was wrong — but only because she didn’t do the math.
In truth, she was more right than she knew. Her lessons on thrift, frugality, and avoiding waste are still powerful today… especially in a world full of taxes and spending traps.
Thanks, Grandma.
Your penny wisdom was priceless.
Key Takeaways:
- A dollar saved often equals $2 earned once taxes and deductions are factored in.
- Spending less = earning more, especially when using discounts or avoiding taxed purchases.
- Smart savings strategies are essential for long-term financial health.
Tyler J Vongsawad CFP®, MSFS, CLU, ChFC, CASL Wealth Management Advisor Founding Partner at Happier Wealth CA Insurance License #0E78493. Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. The information contained in this e-mail message is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed. If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution or copying of this message is strictly prohibited. If you have received this message in error, please immediately delete it. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. The Chartered Advisor for Senior Living (CASL®) designation is conferred by The American College of Financial Services.
