What’s Worth More: $100 SAVED or $200 EARNED?

What's up you guys? It's Graham here.

So, here's an interesting question for you to think of: What's worth more money, the hundred dollars that you save or the hundred dollars that you earn? If you had the option to pick one or the other, which one will you pick? Well, it turns out that one of these options is worth more than the other, and the answer might not be what you'd expect.

I think it's pretty safe to assume that most people would simply rather make the extra $100. There's something you want to buy; instead of cutting back your existing expenses, just go out, work a little bit harder, and make an extra $100. Seems simple. But the problem is that that $100 isn't exactly what you think it is.

So, let's start here. Chances are, if you want to make an extra hundred bucks, you're going to have to spend your time earning that extra $100. It's just not going to appear out of nowhere. For wait a second, maybe it might. It worked okay. But for real though, let's take an example of the typical single California earner making $55,000 per year, where this works out to be $27 per hour.

This means that to make the extra $100, this requires you to work an extra three hours and 42 minutes. But wait a second! It sounds too good to be true because Uncle Sam hasn't gotten their cut yet. Anytime you make money, the first thing to go is taxes. Now, since we're focusing on the top end of that $55,000 per year income bracket, 22% of that immediately gets subtracted for federal income tax.

In California, you also pay an extra 9.3% tax for state income taxes. You then have an additional 6.2% tax for Social Security, and an extra 1.5% from Medicare. And also, if you're self-employed like I am, you tack on an additional 7% and then cry yourself to sleep, but we're going to leave that part out.

This means that for the typical taxpayer in California, for every $100 they earn, they're only left with sixty-one dollars after taxes. So just like that, thirty-nine percent is gone. And this means that in order to make that $100 after taxes, it requires you to go and make one hundred sixty-five dollars, of which at $27 an hour, this is over six hours of work. That equates to almost an extra full day worth of work just to make an extra $100 after taxes.

There is a lot of time and work involved just to make extra money, and if you're self-employed, that number is even lower—it's closer to half, which means for every $100 you make, you're left with only $50. Now, compare that $100 that you made with the $100 you already have in your bank account. Chances are, this $100 is already after-tax money.

This $100 is truly worth $100. Not only that, but when you compare the two, do you think it's easier working over six hours of your day at $27 an hour to be left over with a hundred dollars after taxes, or is it easier just to simply find a way not to spend the existing $100 you already have? Chances are, you can find a lot of ways to cut back and save an extra $100 that won't take you six hours to do.

This means that the time it takes to save $100 is drastically less than the time it takes to make an extra $100. And purely from an ROI perspective, focusing your time first on saving more money will have a greater outcome than focusing on your time earning more money. By cutting back and saving more, it also works great at increasing your net worth.

Now, what intensifies this even more is that everything you buy is paid for in after-tax money, meaning that the $100 item that you bought is really worth a hundred and sixty-five dollars of gross income to pay for that $100 item after taxes. This really puts things in perspective of how much something actually costs that you might not need to buy.

And also, if you're making more than fifty-five thousand dollars per year, chances are you're also paying higher taxes, and these examples are amplified even further. For instance, for someone like me who is self-employed and in California, in my top tier income bracket, for every $100 I make, I'm left with just over $40. Yeah, and if you live in a state without income tax, well, you, I'm jealous.

Now, I just want to clarify that just like with anything in finance, there are some nuances here. Now even though I encourage everybody to save as much as you can, there is going to be a point where you could only save so much until you're living on like rice and beans and $5.00 Subway sandwiches. So it's really important to get to know yourself, and at that point, then start increasing your income and working on that.

It's also very important not to cut spending that's making you more money. For instance, investing your money back into a business and spending it on like Facebook advertisements or marketing can often have a much greater ROI than simply just save, and only you know exactly what that is and what your money is really worth when reinvested back into a business or whatever project you're working on.

But the main takeaway and purpose of this video is simply just to show you the power of the money you already have: to focus on saving and cutting back on unnecessary expenses because this has the highest ROI. It's just about anything you can do. And then second, is focusing on increasing your income. Not only does saving that extra $100 you already have require much less time and much work, but it's often a lot easier than making an extra $100 after taxes.

So, you gotta think to yourself: would you rather just spend $100 less or spend your time making $165 more? And when you look at it this way, it's really like for every $100 you save is really worth $165 earned. Or you could simply just run a cash business and not report your taxes, but don't do that because that's illegal.

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