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Archive for October, 2012

A Penny Saved is Not a Penny Earned

Wednesday, October 3rd, 2012

A Penny Saved is not a penny earned.

Not even one sentence in I can already feel the scorn being thrown upon this post.  Hopefully not for the fact that my writing has managed to degenerate over the years to the level of a high school sophomore, but I digress.  As I was saying, if not for disagreeing with the sentiment then for mentioning that cliche for the hundredth time on this blog.  I stand by the sentiment though; A penny saved is not a penny earned, it is AT LEAST one and a half, possibly two, three or four.

(On a side note, its interesting how our psyche goes automatically to the negative.  How many of you thought I was inferring that its less than a penny rather than more?  Be honest now…)

Starting out in life, it is fairly true.  You make $5. With inflation, now apparently the going rate is somewhere around $30) mowing the lawn, you get $5 errr $30.  As we grow older, it still basically holds true.  You make 10k a year working at <insert collegey job here> and you get to keep, say, 9k, and end up getting half of the other 1k back when its tax time.

Now fast forward a few years, you get a real job.  You still get to keep most of what you make but now the government takes a bigger share.  Lets call it 15%.  Still not terrible, we do have to build roads and pay for schools and whatnot, so I am still a happy-making-what-Imake-paying-what-I-pay citizen, and raises make me happy.

Now fast forward ten more years.  Oh my how the governments share has grown.  You are now a mid level manager at Acme but no longer to you get to keep what you make.  You get to keep some of what you make.  No longer do raises make such a large impact.  Now is when, as the people that were our age when they made up cliches such as you know which one preached, “A Penny Saved is a penny earned.”

Which, I ask you, is better.  A $800 raise or saving $500?
Lets start by subtracting federal income tax.  33% of the increase.  Your $800 is now $534.  Oh but Dont forget state taxes.  Your $800 is now $505. Hey, we’re still on top right?

Well, turns out that extra has now put you over the edge where you can no longer deduct your student loans, or <insert any of the different tax situations that get worse as taxable income rises>.  I dont want anyone to think that Im saying more income is bad, its not, and its obviously important.  The point is, that the more you earn, cutting expenses will much more dramatically effect your cash than income increases will.  Just off the top of my head here are a few big chunks the average person can cut down on:

-Refinance your home.  We’ve done it twice in the past two years and the savings are absolutely ridiculous with the current possible rates
-Refinance your rental properties.  This is much more difficult with new rules, but try anyway (if anyone knows any good 80-20 refi lenders vs 70-30, Im all ears
-Reduce your phone bill.  See if you use all the minutes/text/data on your plan.  If you consistently go over, increase your plan to cut fees.  If you are consistently under, reduce your plan to cut base cost.
-Take advantage of competition.  Sometimes it’s a pain, but switching cable companies is one example. It saved us $100/month and we get NFL Sunday Ticket for free.
-Dont eat out as much
-All the other stuff you can read about over the past four years located conveniently on the right hand side.
-Sell rocks
-Start your own Gold Canyon Candles business