Five Reasons Why a Penny Saved is Better Than a Penny Earned

by Joe Plemon on March 24, 2010

Creative Commons License photo credit: robynejay

Memo to Benjamin Franklin: “Mr. Franklin, the wisdom of your classic adage is timeless. A penny saved is indeed a penny earned. However, at the risk of trampling on hallowed ground, I would suggest that ‘A penny saved is better than a penny earned.’ I realize that your original rolls easily off the tongue while mine is forced and awkward. So here is the deal: your saying will remain a classic and mine will be the title to this blog posting. But at least allow me to explain why I think a penny saved is better than a penny earned. Thank you.”

The value of the saved penny became apparent in our household two months ago when Janice announced that we were not going through another summer with our scruffy, moldy and mildewed deck furniture. I confess that I am clueless about deck furniture, especially the pricing, so I tentatively asked, “How much? And where will the money come from?” Janice was ready for me. She had already shopped, found what she wanted at 60% off retail and devised a plan to pay for the furniture. I love this gal!

What is her plan? Very simple: save cash from our envelopes each month. I realize that one shouldn’t have fluff in the envelope budget, but Janice, who controls the envelope spending, was stashing away cash without me even realizing it. “How?” you may be asking. By slashing our grocery and eating out spending. Janice took “tightening our belts” literally: zero eating out and more diligent bargain shopping for groceries (double coupons, 10% discount on Senior Citizen Day, bargain bin meat purchases, etc.).

I am convinced that we will have new deck furniture this summer, paid for with extra savings, not extra earnings. Janice’s plan causes me to realize several reasons why a penny saved is better than a penny earned.

Here are five:

1. Focused goal setting

We will have our new deck furniture because Janice has a very focused goal. She knows what she wants, she knows what it will cost and she has a plan to get there. As a semi-retired couple, earning extra money would require one or both of us to take on a part time job. Let’s compare…no eating out for a few months…or seeking, finding and holding down a part time job. Hmmm. My belt needed to be tightened a bit anyway.

2. Better money management

Because saving forces us to manage a finite amount of money, we must innovatively find ways to live on less. Earning more, on the other hand, usually promotes sloppy money handling. Answer the following question: “Specifically, what did you do with your most recent pay raise?” If you are normal, it simply disappeared. I rest my case. More earnings will slip through your fingers; saved money is squeezed.

3. Preparation for the unknown

You never know when you might lose your income stream, but if you have practiced saving those pennies, you will be able to cope much better when the unexpected happens. Hint: save for emergencies before they come!

4. Long term benefits

The lessons you learn on saving those pennies will take root in your psyche, giving you a mindset and confidence that you can indeed live on less when you decide to do so. Therefore, whether you are paying off debt, building an emergency fund or investing for retirement, you will succeed because of the seeds of success you have previously sown.  Consider this: if you do a great job of saving, your income could actually increase.  How?  By using that saved money to create money.  To stimulate your thinking, here are some great passive income ideas.

5. Less Taxes

Whereas only the interest earned on savings is taxable income, all earnings are taxable. For example, if you earn 3% on $1,000 savings,  you would pay taxes on $30…$7.50 if you are in the 25% incremental income bracket. On the other hand, $1,000 earnings will cost you $250 of income taxes under the same scenario. Stated differently, you would need to earn $1,323 to net the same as saving $1,000. Had Benjamin Franklin paid income taxes (no one did until their inception in 1862), he would have surely realized that a penny saved is better than a penny earned.  I imagine Benjamin, in today’s world, would investigate other tax savings such as energy tax credits.


This post in no way infers that earnings are not important. I hope you have a great and growing income stream. But earning more money is of no value until you learn to save. A penny saved is even better than a penny earned because savers develop frugal living habits which give them confidence and ability to cope even when life sneaks up on them. Besides, saved pennies are taxed less than earned ones.

Footnote: our back up plan is to cash out our quarter jar…worth maybe $200. With apologies to Benjamin, “A quarter saved is better than a quarter earned.”

As always, I appreciate your thoughts.  Are there other reasons why saving trumps earning?  How about instances where earnings are more advantageous than savings?


{ 10 comments… read them below or add one }

Dustin @ Envelope Budget March 24, 2010 at 7:44 am

I totally agree. I remember a number of years ago a network marketer was in my home trying to sell me on some program. The program wasn’t that great, but he taught me something I have never forgotten. He asked if it were better to save $100 or make an extra $100. I had no clue, so I figured it was better to make an extra $100. He explained why I was wrong (hint: #5 from your post).


joeplemon March 24, 2010 at 8:19 am

It is obvious once you wrap your mind around it. I suppose Benjamin turned some heads by simply saying that Saving = Earning. We just aren’t conditioned to think that way.

Thanks for sharing your story of how you learned a lesson from the network marketer. I wonder how many of us learn and remember something because someone asked us a question that needed pondering. Didn’t Jesus teach that way? Hmmm.


lencib: falling into favor March 24, 2010 at 1:44 pm

I like this post. I’m currently debating the same thing with saving. I am actually looking for a job so that we can save more money (saving for car) that will work with my husband’s schedule or be within a bike ride. But we are also evaluating saving money on things we spend money on. Like grocery. Thats starting with planting a garden, shopping at farmer’s markets and whatever other cuts that can be made. We’re evaluating all spending for this April budget coming up.


joeplemon March 24, 2010 at 7:06 pm

You are definitely on the right track. Looking for work within a bike ride distance while you save for a car is awesome! Cutting grocery spending by gardening and farmer’s market (something my wife is big on) will also make a huge difference. I also like the way you are planning your April spending before the month starts. Let me know how it goes.


joeplemon March 26, 2010 at 1:58 pm

Yes about the focus, and the younger the better. My wife and I are like so many who drifted through life with little financial focus. At least we are “getting it” now. Better late than never. 🙂


Shirley March 31, 2010 at 1:50 pm

Quite a bit of truth in your words! I think a lot of people overlook saving until they realize there is something they really want. And then saving becomes an exercise in patience. If we are all conscience with our “extra earnings” we may be able to give more charity, expand our emergency funds, and replace that old deck furniture (or something else that is a mutual need/desire.) It just makes sense to me (and to you and your wife,) yet I am baffled by the number of people who don’t get this concept!

Anyways, great post- glad I stopped by!


joeplemon March 31, 2010 at 1:59 pm

You say you are baffled by the number of people who don’t get this concept. Me too! It can’t be because of any complexity; saving is simple! It must be because they don’t even consider it. Why? Different priorities? A deep seated habit of spending every penny they touch?

I do know this: no one will ever change until they are ready and want to.


joeplemon April 7, 2010 at 4:21 pm

Good job on saving your pennies by making small sacrifices; you are a testimony that the pounds will indeed take care of themselves. We could come up with a new saying based on your comment: “A penny not spent is a penny earned.”


John Rood December 5, 2010 at 10:24 pm

A penny spent is a penny spurned.


wilms February 5, 2011 at 8:23 am

Yup. Earning much is useless if there’s none that is saved. What’s more important is the size of our saving than the amount of our earnings. That way we become responsible for our future when we don’t have active earnings anymore and the passive income from our savings/investment or our savings itself will be the one to take care of our expenses, especially if we want to maintain the lifestyle that we have been used to.


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