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Why Saving Is a Bargain

THERE ARE ALL KINDS OF GOOD REASONS to save regularly. Here’s another to add to the list: Saving is a bargain—and spending is mighty expensive.

How expensive? Let’s say you earn an extra $1,000 and you are in the 24% federal income tax bracket. After deducting federal income taxes, Social Security and Medicare payroll taxes, and state income taxes, you might be left with $650 to spend. When you spend that $650, you might end up with barely $600 of merchandise, because in most places you will also pay sales taxes.

By contrast, if you put the $1,000 in your employer’s 401(k) or similar retirement plan, you get to keep the entire $1,000. As an added bonus, if your employer matches your 401(k) contributions at 50 cents on the dollar, your $1,000 would become $1,500.

That’s pretty enticing. Instead of $600 of spending today, you might have $1,500 for retirement—and that $1,500 could double or triple in value, and perhaps more, by the time you quit the workforce. True, you’ll need to pay income taxes when you withdraw the money in retirement. But all the intervening years of tax-deferred growth should go a long way toward offsetting that eventual financial pain.

Next: How Money Saves You Money

Previous: The Earlier, the Better

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