In his book, The Wealthy Barber, author David Chilton famously wrote “a dollar saved is two dollars earned” which is a play on the common phrase “a dollar saved is a dollar earned” (Chilton, 2002). His version corrects the former version because it did not account for taxation – the difference between gross and net income. For each dollar that reaches your bank account (i.e., Net), you had to earn much more than a dollar (i.e., Gross). Chances are that 40% of your gross income is taken off in the form of deductions on your paycheck, leaving you with 60% that is deposited into your bank account. This means that you must earn a gross income of $1.67 for each dollar that you net. When considering potential savings on a purchase – each dollar you save on the purchase is equivalent to having earned $1.67.

If we take this example to a real-world scenario – if you purchase a new television today, it costs $1,400, but if you wait for an upcoming sale, it will cost $999. Everyone can agree that a $401 savings is impressive, but now consider how much this is in earnings. In this case, $401 saved is $668 earned! When you begin to think about cost savings in this way, you will embrace frugality and look for alternative ways to save money. There are many ways to save money on everyday purchases: shop around, wait for sales, buy second-hand, borrow, rent items instead of purchasing, buy generic brands, etc.

While depending on your payroll deductions, David Chilton’s “a dollar saved is two dollars earned” may not be exactly right – we calculated above that with a 40% deduction, the saying should be ‘a dollar saved is $1.67 earned’, the concept is what is important. Each dollar saved is much more valuable than a dollar to you, so spend wisely and with purpose.

References:

Chilton, D. B. (2002). The wealthy barber: The common sense guide to successful financial planning. Financial Awareness Corp.