A Simple Equation

photo of a wine glass with sand for investment guideThe power of budgeting is the power to decide between two paths.  

One path goes to financial freedom, the other heads downhill to increasing misery.

The two paths diverge more than you might think.

A glass half full is about the same as a glass half empty.  It’s a little different with money.

When you earn a dollar, you pay taxes on that dollar, which means you keep, say, 75 cents.

When you borrow a dollar, say on a credit card, you pay interest on that dollar until you pay it back.  You pay back dollars from those with 75 cents left over from taxes.

It’s a double whammy.  Spending a dollar that you don’t have is worse that spending a dollar.

But when you SAVE a dollar before taxes, you keep . . . a dollar!

The dollar that escapes interest charges and taxes is special.  You have wrested it free from the tax man and the creditor.

When you save that dollar in a 401K, you don’t have to pay taxes on your gains.  You keep your cake and a little bit of frosting that gets thicker over time.

The difference between spending more than you earn and saving more than you spend is more different than most people appreciate.

I learned this lesson years ago from this book.

I promise you, the price of this little, funny book will pay you back many times over.

About AstroGremlin

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16 Responses to A Simple Equation

  1. Rose (aka sousababy) says:

    Dear Astro G,

    You have the gift of brevity . . too many of us (including me) forget that the best way to double your money is to fold it in half and put it back in your wallet.

    A long-winded article of mine that speaks about greed / power: Why the “Bad” in Society seem to be Winning

    Thanks, as always, for landing on my pages . .
    Rose (aka sousababy)

  2. david says:

    This is a great post. It makes sense. the problem for most people is that they have trouble saving no matter what happens.

    It’s those little things in life that creep up that force you to spend your savings.

    These are things like an unexpected doctor bill or a broken refrigerator.

    To me the only real solution is to make so much that these little pains in life no longer amount to anything – the trouble is getting to that point!

    Any thoughts?
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  3. Payday Loans UK says:

    Spending a dollar that you do not have is worse than spending a dollar…I absolutely agree with that!Lots of people are tend to be wasteful, and do not really value money.It’s not just my point of view, all of us can see how huge is , for example,the credit card debt.The main mistake is that sometimes we spend more than than we earn, in the crazy rhytm of life we may even notice that.Saving money is the only key to wealth, but saving money is just like an art and this ability can not be reached easily.Budgeting is not an easy process, everything is very personal, and I think that all the recommendations about saving money are nothing without practice and understanding the value of money.If we will start saving money from saving a dollar then we will see lots of opportunities for saving around.

  4. Amy Turner says:

    Some people are lucky enough in that early on in life, they have realized the value of saving before spending. Most of us are the opposite, we love to spend freely like there’s no tomorrow, and then wake up to the shocking reality that not only are we lacking in savings, but more so, we are buried in debt.
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  5. Michael Belk from workplace issues says:

    I agree with Jeremy, the spending less than you make is a great concept but many people have a problem with this. I am starting to get the concept.
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  6. Johnny says:

    Saving for retirement is a very good idea. I am 30 years old and ever since I was 25 I started to deposit $100 / month into an account. So far that account holds $6000, without interest. I plan to retire completely when i’m 60, and if i can, until i retire, i will add more / month. It won’t be much but, with interest, i will have some extra money besides my pension.

    Warm wishes,
    Johnny.

    • AstroGremlin says:

      Good for you, Johnny. The savings charts all show that starting saving early in life makes more sense than putting saving off until later in life. And it’s typically tougher for young people to save in their “salad days.” As I mentioned to Michael, not making much money is no excuse. No matter what you make, figure out a way to save 10%. Having it withheld from your salary is fairly painless. That was the strategy of a lot of otherwise ordinary people interviewed in a book I reviewed, The Millionaire Next Door.

  7. Martin from CDL Practice says:

    Great article. Here’s the way I see things: your lesson goes beyond saving money; you’ve mentioned saving for retirement, which is an interesting subject: the more you prepare for retirement (like you mentioned 401K or IRA), the better life you’ll have in older age. I’ll take a look at your book later today. Cheers!
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    • AstroGremlin says:

      Martin, that book is actually easy to read and quite funny. What it offers is a new way of thinking about how hard it is for you to get a dollar and why you owe it to yourself to use saving to attain financial freedom. Hilarious discussion of commodities, why they are not for small investors, and how professional traders wouldn’t know a pork belly if they hit one with their car. :)

  8. Micah says:

    Yes this simple lesson does seem to escape a lot of people. Our government included…
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    • AstroGremlin says:

      Micah, politicians can’t seem to resist playing games with our tax money and our credit. Michael O’Donahue said it well, “Giving politicians money is like giving car keys and liquor to teenagers.”

  9. Jeremy says:

    The spending less than you earn concept is pretty straight forward and repeated all over the place. Saving more than you spend is actually much better advice though. Instead of just focusing on just living paycheck to paycheck, it is more about making your money work for you long term.
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    • AstroGremlin says:

      Jeremy, you got it. Not spending more than you earn, keeps you from sinking. Saving some of what you earn will eventually get you out of the water. :)

  10. Michael Belk says:

    Great ideas Astro, It is funny I can tell me how to save money all day, but when it comes to me I do not practice my own lessons. It must be pain because I avoid the pain.
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    • AstroGremlin says:

      Michael, saving always takes painful sacrifice, but if considered over the long run, saving (versus spending) avoids pain. But it requires thinking in the long-term. A phrase that helped me, “Pay yourself first.” No matter what your income, figure out a way to save 10%.

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