Why saving $100 is better than making $100

Is it better to save $100 by not spending it, or make an extra $100 by working for it? Many people would say there isn’t a difference between the two because either way you’re working towards the same amount of $100. Today we’re going to learn why it's important for both individuals and businesses to consider saving $100 more valuable than making the extra $100.

Generally, people need to pay taxes on money they earn past a low threshold. This means that the extra $100 you made at work from working those extra hours during the week won’t lead to you taking home $100, in many cases it would be in $70-$80 range. However, when you are able to cut out an $100 expense, you keep an extra $100 in your bank account (which you have probably already paid taxes on).

Similarly, businesses will likely need to expend resources (incur additional costs) to make additional revenues on top of paying taxes. What this means is that an extra $100 sale could lead to an additional $60 dollars or so of take-home income after expenses and taxes. If a business is faced with the choice of cutting an $100 expense and making an extra $100 in sales, it should choose to cut the cost and enjoy all of the $100 benefit, rather than only a portion of it after expenses and taxes. This concept is more important for businesses because they have a bottom line that is readily and routinely examined by the business owners.   

While the difference between $60 and $100 may not be much to some people, the amounts can add up and make a difference over time for both individuals and businesses. If you can find a way to consistently cut $100 from your monthly spending budget and put it into your savings, it will be more impactful than a $1,200 bonus from your employer over the course of a year. In the same line of thinking, if you can reduce your business expenses by $417 per month, it creates a bigger benefit than an extra $5,000 in sales for the entire year. 

Why is this important?

Individuals and businesses tend to focus on how much they make, in other words: the top line.  By focusing too much on this top line figure they can forget about the expenses that got them there and ultimately lead them to the net income of the company (the bottom line).  While cutting expenses can only get you so far without expanding your business or increasing your salary, it's important to know that the marginal benefit gained from cutting expenses is far greater than a similar increase in income. Every individual and every business is different, but I can guarantee there is some place in life or business where costs can be cut to make a better investment or bottom line.  So the next time you encounter a scenario where you can cut business costs or reduce your personal expenses, do it!