Learn Why a Penny Saved, a Penny Earned is Not True

Conventional wisdom is sometimes more than right. There's 3 key factors why this is true when it comes to saving money.

First, money spent on purchases, to pay bills is paid with after tax dollars.

So that means that saving money is worth 10-50% (with state and/or retail sales taxes) or so more than earning income. If you can save $300 a month on shopping and bills, that translates into $350-$600/month of income. That's $4,000-$7,000 a year in income! But wait there's more! And BTW, this article was first written in early 2020, then the world was turned upside down due to the RESPONSE to the virus so I decided to not launch my site then. However seeing that inflation has run rampant I decided to launch site now to help Americans to save and earn more money more quickly and smartly.

So how do I get to the 2 to 1 multiplier of $1 saved = $2 earned? Well we just got 10-50% of the way there (depending on your tax rates paid) in saving after tax dollars as compared to income. The other 3/4's comes with investing smartly that produces sound return on investment and then there's the magic of compounding interest.

Let's say you were able to save $333/month and you invested that $333 every month to earn an average return of 7% annually. Now let's apply 7% compounding interest for just 5-years.

In 20-years you'll turn $1 saved into $2.04 dollars earned. Now we must consider you might have to pay a capital gains tax of 15% if you earn over $40,000 a year (Note, I'm not an certified tax or financial planner or financial adviser.) So paying this tax reduces amount saved up, but when adding in savings comparison to money saved vs. earned of 10-50% (with state taxes), you'll be near 2X multiplier on money saved. Now that's just at a 7% annual, compounding interest rate return. What if, after getting savvy smart as an investor or found super smart money manager that earned 12% a year?

That's very possible by the way.

From an article by The Motley Fool "Since 1965, the S&P 500 has delivered annualized returns averaging 9.7%, including dividends. During the same time period, Berkshire Hathaway has generated an average stock price gain of 20.8% per year, or slightly more than double that of the S&P 500." So you can follow his investments or invest in the S&P 500 index fund SPY to have a chance at such returns. As a reminder, though, I'm not a financial adviser and past performance is no guarantee of future performance. You could find a smart money manager to produce a net 12% annual return (post management fee of 1/2%-2%) over 20-years or follow portfolio and trades of smart money investors to retain a 12% ROI. See below return on $333 invested monthly over 20-years with a 12% ROI.

Pretty crazy the power of compounding interest huh? With saving just $333/month and investing it to earn a 12% annual rate of return (that's just 1%/month), you'll have saved $287,921! That is a 3.06 times return! Now there will be a capital gains tax of 15-20% (or more if the Federal government and state governments raise/add taxes), but with consideration of saving money vs. earning money and the extra 10-50% value of money saved, you'll still be up 3X in 20 years. Now I will not share here returns on earning 15% or even 30% annual returns on investment for that's not really feasible right? Some hedge fund managers and investors would beg to differ. Perhaps some of our Unofficial S$U Professors can point you in the right direction. If I find financial advisors or funds that are performing consistently well, I'll point you to them.

If you liked this post by Savvy Saver Media, you might want to consider becoming a member to gain our best money saving and investing tips and strategies (I'm not a financial advisor) to learn about our holistic system to simply save more money than you may have thought possible. Saving $333 per month may be easy or perhaps saving $1,000+ per month is very possible. We provide curated content, laser focused on saving you more money, paying off debt and to make wise investments using both conventional wisdom and our outside the box, contrarian insights.