Thursday, February 17, 2011

"A Dollar Saved is Better than a Dollar Earned"

This quote comes from Jeff Yeager, "The Ultimate Cheapskate."  I was reading his book not too long ago, The Ultimate Cheapskate's Road Map to True Riches: A Practical (and Fun) Guide to Enjoying Life More by Spending Less.  Pretty good.  A little extreme by some standards, but loaded with good, solid wisdom.  He talks about this thing he calls "The Money Step" which he started to figure out when he was a kid.  He watched his friends as they turned sixteen, all wanting cars.  So they got jobs to pay for their cars, and to pay for the gas and insurance and maintenance of said cars, whose primary purpose was to drive the kids to work.  And he thought, well, if I don't get a car, then I don't need to work that hard to accomplish nothing more than paying for the car.  Smart kid.  I bet he drove his parents crazy.  Anyway, though, he carried this philosophy into the future and he puts forth the idea that it's rather silly to keep dancing The Money Step, burning up time and energy for no other purpose than to pay for the things you want and/or need in order to support you in burning up that time and energy.   Keep your expenses low and your life simple, and you can really cut back on the amount of time you have to spend working and generating income to pay those expenses.  Small house.  Used car.  Thrift shops.  Yard sales.  Cook from scratch.  And so on.   The book is peppered with humor as well, some of it a little... well.... male, I guess.  But overall it was a good read.  And out of it, that little quote stuck with me.

At first read, it doesn't necessarily make a lot of sense.  You have to chew on it a little.  The idea behind it is that you have to exert more energy to earn the money to pay for something that costs a dollar than you would have to if you didn't spend that dollar in the first place.  When you factor in taxes, plus all of the costs associated with employment, you have to earn something closer to $1.30 or $1.40 in order to have a dollar to spend.  But if you don't spend that dollar, then you don't have to pay taxes on it, you don't have to work for it, and you are thus actually ahead by a dollar.   Sounds a little convoluted, but I had a light bulb moment the other day about this sentiment.

I was sitting here in my living room, the kids were playing, the sun was shining in the window, I was enjoying a cup of tea, watching something on the TV and working my way through a pile of mending.  A tedious chore for some people, but I actually don't mind sewing.  I just have to make the time to do it.  So I had a little pile built up.  And I got to work:

Girl's tights with a hole in them
Girl's denim dress with the sash coming loose
Girl's cotton dress with a split seam
Girl's night gown with a tear in it
Ladies' knitted duster with a split seam
Ladies' down-filled coat with two split inside seams
Men's insulated work gloves with a split seam
Backpack laptop bag with a split seam

My rough estimate of the cost to replace all of this stuff at retail prices?   About $300.00.     Having said that, all but the gloves and backpack actually came from the thrift shop and cost me about $10.00 total.  The gloves were about $40 and the backpack $100.   So actual cost $150.00.   And all of them had holes and tears that for many people would be grounds for throwing them away.  Instead, I invested a couple of hours.

How long would I have to work to have $150.00 to spend on replacing these things?    Let's say I have a good job making $25/hour.  Assuming 40 hours a week, 52 weeks a year, that's an annual income that puts me into a tax bracket where I'm losing about 30% just to income tax.  So my $25/hour is actually $17.50/hour... not factoring in anything else like gas, clothes, etc, I'm looking at 8.5 hours - more than a whole work day!! - to replace this stuff.  Stuff that if I were working full-time, I wouldn't have time to repair, so I would just toss and replace.   For that matter, I might not have the time to thrift shop if I were working full-time, so I'd replace them at retail, meaning working 17 hours just to pay for them.  And that, folks, is what he means by the Money Step.  And that is why saving a dollar in the first place puts you further ahead than earning a dollar.  And that was my light bulb moment.

No comments:

Post a Comment