A dollar saved, is more than a dollar earned.
Ergo a dollar spent, is more than a dollar spent.
But a dollar spent on credit, is much more than a dollar spent.
A dollar saved, is more than a dollar earned
CreditWhen you save $1 from your paycheque, after income and taxes, it might end up being much more.
How?
Because you had to earn $1.50 or $2.00 (depending on what tax bracket you fall into) to earn that $1 after taxes.
Ergo, a dollar spent is more than a dollar spent
Any time you have to spend $1, it is coming out of your savings after tax.
So that $1000 TV set? Let’s assume every $1 earned is $1.50 earned in your gross salary after taxes and fees.
So it’s $1000 x 1.5 = $1500 in gross income you had to earn to pay for it.
And if you earn $20 an hour, that’s 75 hours of work! ($1500 / $20 = 75), or approaching very close to 2 weeks of work.
This is assuming you pay in cash.
But a dollar spent on credit, is much more than a dollar spent
If you don’t pay in cash, and you put it on a 19% interest credit card, the numbers change.
Let’s say you don’t pay the TV off for a year.
For whatever reason.
Bills, the dog got sick, you had to replace the water heater…
The good news, is that you didn’t add to that $1000 balance on your credit card.
Assuming the above variables where you work for $20/hour, that $1000 TV set is now:
$1000 x 19% = $190/year paid in interest
$190/year divided by 12 months = $15.83 per month in interest charges alone
Not bad right?
$1000 + $190 in interest = $1190
$1190 x 1.5* to get your gross earned = $1785 you have to earn before taxes
*I assumed $1.50 gross to every $1.00 earned after taxes
Doesn’t look so good now, does it?
You have to basically earn almost double before taxes to pay for a $1000 TV, if you decide to put it on a credit card charging you 19% interest.
Earning $20/hour, that’s $1785 divided by $20 = 89.25 hours, or over 2 weeks of working.
Want to get fancy? Think about compounding interest..
$1 invested each year at at 7% return after 30 years, will yield approximately $102 at the end.
Out of $30 you can have around $102 in 30 years.
Imagine if you saved more than $1.
You don’t need to do these calculations all the time for every purchase you make
That’s just insanity.
But you do need to be aware of what it’s costing you in lost savings, interest charges, and time spent working to pay for it.
Just a girl trying to find a balance between being a Shopaholic and a Saver.
I cleared $60,000 in 18 months earning $65,000 gross/year.
Now I am self-employed, and you can read more about 
well lets think about your earned dollar how many times is that same 1 dollar bill taxed i say three times maybe i am wrong i get taxed at work to earn that dollar i get taxed at the store to spend that same dollar then when i am done with the item that i payed for i throw it in the trash can and the trash man comes and gets it to take it to the dump and i get to be taxed by the city for the garbage bill maybe i missed some other tax in there somewhere so how much is that 1 dollar realy worth?
maybe 60 cents or less !!!
True!!!!
This is why I’m so dead set on not taking out student loans for my MBA. If took student loans out for all of it and took the full term to pay them off I’d be taking more than twice the degree’s original cost from my gross income to pay for it. Which seems brutal when that adds up to $360,000+.
This is why $60,000/year salary sounds like a lot, but it is barely enough to pay the bills! 😉
I never got this line of argument as a convincing disincentive to spend.
You never realise earnings “before tax” so you are just playing maths gymnastics if I say this should feel like earning $1785 and dissuade me, because the feeling of taking home $1785 is clocking up enough hours to pay taxes on twice that …. effectively saying this is really costing 4x as much. If I take home $1000 a week after taxes, and something costs me $1000, it is weeks worth of work. There’s no point saying that I need to earn $2000 to earn the $1000 to spend? I definitely do not need to make $4000 worth of effort to net $1000 to pay for something. I work a week to earn $1000 after taxes, $2000 before taxes, the effort is the same.
Knowing take home hourly rate, taking into account commuting and unpaid work, is a simpler way to assess if something is worth x hours of your life.
And while we have no access to our spent tax, or control, that money is not simply disappearing, you are returned some value for it 🙂