Why the Penny is Sacrosanct or Should Be!
Image source: @adamnir, Unsplash
If you’ve been following Budget and Grow Rich®, you know that I started budgeting when I was 12 years old – a long time ago. In fact, budgeting has served me very well.
Personal budgeting gives you control over your money; shows you what you can afford and what you can’t; and most important, helps you gauge whether you are on track to meet my financial goals. Oh and yes, let’s not overlook Peace of Mind!
At the root of a personal budget, it begins with the penny.
Many people dismiss the penny, calling it a nuisance. On the other hand, coin collectors scour the planet to add more pennies to their coin collection.
The penny has an interesting history, dating back to U.S. Colonial Times with the Coinage Act of 1792 when George Washington signed this into law. Benjamin Franklin suggested the design for the penny.
Which brings me to my next point – the importance of a Penny. And why you should consider it as sacrosanct.
Ben Franklin, according to many, said, “A penny saved is a penny earned.”
But, according to the Ben Franklin Institute website, Ben Franklin did however, write in the 1737 Poor Richard’s Almanac: “A penny saved is two pence clear.”
To share a penny for your thoughts [Sorry], Saving is Easier than Working!
Let’s review some simple math. . .
If you are subject to taxes at a combined rate of 40%, which is easy to do, to generate a penny after taxes (after-tax), you have to earn more than that:
1₵ divided by 60% or 0.6 equals 1.67₵.
Or $1 divided by 60% or 0.6 equals $1.67; and so on.
In other words, to generate $1 after-tax, you have to earn or generate $1.67 pre-tax (before taxes).
By the way, the 60% or 0.6 equals 100% minus your tax rate, which in this example we’re assuming is 40%. So, 100% minus 40% equals 60% or 0.6.
You can estimate your tax rate by reviewing your paystub, more or less.
Divide your take-home pay by your pretax pay.
There may be some adjustments, for example a contribution to your retirement plan (401(k), 403(b), Individual Retirement Account (IRA) etc.); a healthcare savings account (HSA) or a flexible savings account (FSA),. But the calculation should give you a reasonable estimate of your ratio.
Therefore, by reducing your expenses and saving money, you can save a penny after tax Without having to work another minute.
And by saving one penny after-tax, you save more than that because you don’t have to generate more pre-tax income. Hence Ben Franklin’s saying.
And when you create automatic savings programs (like saving money at McDonald’s every day), you build recurring, ongoing savings. Set it up once, and let the savings flow.
Second and more important. . .
It’s All About the Mindset. . .
By adopting the perspective, the view, that saving a penny here and there can add up to big dollars, thinking about where to find pennies gives you the savings mindset.
Yes, adopt an eye for detail; But don’t lose sight of the big picture.
Once I adopted the save-a-penny mindset, it became a game to save money. Not just pennies but dollars; then tens of dollars and then $100s of dollars.
And it all starts with trying to save a penny here and there.
By focusing, at least a little (without going overboard), on saving pennies, you orient your thinking and train yourself to focus on saving money, to be on the lookout for opportunities to save money:
Whether that’s buying store brand goods instead of name-brand goods.
Canceling unused subscriptions to magazines, Cable TV or Streaming Services.
Going to bars and restaurants less frequently or spending less.
Taking a staycation or vacationing in the off season.
Obtaining a credit card which gives you cash back or rebates.
Joining a warehouse club to purchase groceries – think COSTO or Walmart.
Or wherever you can, take the hatchet and chop your expenses.
A few months ago, I checked my credit card statements. On Amazon Prime, I noticed that I was paying $6.95 a month for a subscription to BritBox. I enjoy the BBC show ‘Death in Paradise’ but I’d watched Season 10 (twice actually) and hadn’t watched BritBox for several months. I was waiting for the studio BBC to release Season 11. But . . .
That was five or six months later. So, I canceled my subscription to BritBox and so far have saved $41.70, after tax. That’s $6.95 per month multiplied by six months.
Besides, with my subscriptions to Netflix, Amazon Prime oh and yes Paramount Plus, I have more than enough viewing options!
It’s true – pennies add up to dollars which add up to $100s and so on.
Identify one or two areas to save money.
Look for unnecessary spending – waste. These expenses are easy to cut. You can save money easily when you take action.
Start small and grow from there.
While we’re at it, one great place to start saving money is in the grocery store.
To Save More Money on Groceries, Every Day – click here.
See you next week.
Arthur V.
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