Poor Richard Almanack
"A penny saved is twopence dear" proverb from
Poor Richard Almanack is often mis-quoted as a penny saved is a penny earned. The wisdom in the concept no matter which quote you use is a good financial stewardship principal.
The idea is to save money so you can invest that money and it will grow. It is something you teach your kids from an early age. "Save your money, put it in a bank savings account and it will grow more money." (via interest) Although the interest banks are paying out at the moment are dismal, it is a good tool to teach your kid the basic principle.
Little Change That Adds Up
As an adult you have a tendency to forget the wisdom you learned as a child. That doesn't make it any less valid or valuable. On the contrary a basic truth can be applied in more advantageous ways. The basic truth is if you save money you can invest money, if you don't have money you can not invest something you don't have.
If you save money you can invest in stocks that
pay dividends. (Right now many are paying more then interest on a savings account and you have the added benefit of owning a small part of a company.) Perhaps you can save enough money to purchase a house.
The above examples are nice. I would suggest there is more we can get out of the saying "a penny saved is a penny earned". Money saved for a rainy day is insurance for the unexpected. This also provides earnings if something happens.
My example of this is saving enough money to raise your deductible on your car insurance. When you raise your deductible you save money over the long haul (long term thinking). This is an investment in your future. Money represents hours worked. If you save money from paying less on insurance you have freed up the need to work those hours in the future or you can work those hours and invest/spend the money elsewhere.
Saving money is an insurance policy against future loans. If you have money saved you don't have to get a loan out for a purchase whether it is for an emergency or otherwise. It is amazing to me the people I see who will drive all over town to save 5% on a sale and use a credit card with 20% interest This is just paying 15% more had you just saved the money. This doesn't even include the gas to go to the store in the purchase.
If you save money you can have the ability to self insure long term purchases like a house or a car. (Personally I don't think you should buy a car on credit; or at least make every effort not to. I realize many people do for varying reasons so my example is below:)
You
purchase a new car at $26,000 value, the depreciation in the first two years is about 20-30% so you would need to put down at least $5,200-$7,800 to cover that loss.
By saving the 20-30% down payment you self insured against the depreciation of your car during those first two years keeping the deal from being upside down. Being upside down on a loan just means you owe more then you can sell the car for. Saving up at least for a depreciation size down payment can eliminate risk of owing on a car you may sell. Also the down payment cuts down on the principle of the loan which saves you money in the long run.
If you can save 20-30% why not eliminate that by buying a two year old car at $18,200-$20,800 and save up your $5,200-$7,800 any way and finance only the remainder which is about half of the original cost of the new car. If you can save enough for 50% of a car why not save more finance charges by saving for 100% of the purchase and earn the finance charges back to your wallet....
See: a penny saved is a penny earned (sometimes two pennies earned).
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