Sunday, May 28, 2017

A penny saved is a penny earned - Benjamin Franklin

I thought I'd take some time off from writing about the onslaught of Marxism in our current society to focus on a few financial matters that I think everyone should know about to help them in the current world.

A lot of the things I write about may not apply in countries other than Australia, but a lot of the concepts are the same, regardless of where you live.

I'd like to start with the famous quote from Benjamin Franklin: "A penny saved is a penny earned".

I believe that statement is actually no longer true in this modern day.  His statement was true in his day and age when income tax rates were zero (and the money supply was governed by the government, not a private organisation, but that's a whole other kettle of fish) but a penny saved is actually less than a penny earned.

With income tax being what it is, the average salary for a male is $83,902 p.a. which falls in the 32.5% tax bracket in Australia.  So that means that for every dollar I spend (over the $37k income), I have to earn $1.48.  It may not seem like much but consider if I'm able to save myself $40 a week on something, say transport expenses.

Assuming I'm only working 48 weeks of the year (we have four weeks annual leave a year) and ignoring public holidays (because when you're buying monthly tickets, it doesn't always work out to have monthly tickets start & finish around those dates) that's $1,920 per year AFTER tax.

The BEFORE tax amount on this is $2,844 (rounded off to the nearest dollar).

For a person living on the median salary, that $2,844 is the equivalent to a 3.4% pay rise.  Given this current economic climate, I know heaps of people who don't even get that.

Think about that for a minute: small things we can do every day, that might save $5 here and $10 there add up very quickly and, when you start to think about money you're spending in terms of how much you had to earn rather than what you're paying, it becomes very different.

$4 per drink for morning tea and afternoon tea (which is more like about $4.50 for a bottle of soft drink in the cafeteria in my building)?  That's $8 a day or $40 per week right there!

The same also applies for big purchases too.  People who are upgrading their phones every couple of years (many of them unnecessarily so) may spend about $1,200 on the new iPhone or Samsung phone (not including the case or cover that a person should buy to protect their expensive new piece of equipment).  That's about $1,800 in pre-tax money.  Or the equivalent of 2.1% of the median salary.  So, putting off replacing an otherwise working mobile phone until the old one actually stops working (or becomes obsolete) is like giving yourself a pay rise.

People who kid themselves into thinking they've avoided that cost by opting to buy the phone on a 24 month plan, are just paying the same price (or higher!), with the spend just spread out over 2 years.

I'm not suggesting we should all live like monks and not enjoy living in our country, but the lifestyle we lead may be more expensive than we think it is and, with intelligent decisions on where to cut, where to substitute and where to find cheaper alternatives, we'll be far better off than arguing or begging for that pay rise to be 4% rather than 2%.

The money we save will go a whole lot further than incremental pay rises.  We may not have a latte with every morning tea or the latest mobile phone, but we'll be financially better off in the years ahead.

Remember how many people you know who say "I wish I'd drank more coffees over the years" vs the number of people who say "I should have started saving more money years ago".

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