Most people automatically assume that the way to make more money is to work more in order to earn more.

It is often overlooked that getting into the savings habit allows you to be wiser with the money you’ve already earned, instead of having to work harder for longer hours in order to be able to spend more. It’s especially true when we are finding reasons to treat ourselves for working hard already.

It’s all about the consumerism and the cycle is hard to break, but how much have you really worked for that latest splurge?

Stop and take a moment to think about how it works.

The saying goes that a penny saved is a penny earned, but that is not true at all. A penny saved is actually worth more than a penny earned. When you earn your penny, or your hundred or thousand pennies, you are taxed on them.

You don’t get to keep the whole penny you earned.

But when you save your pennies, you’re working with the money that has already been taxed. You won’t get taxed on that penny again.

You get to keep the whole penny you saved.

Before you go ahead and make that next must-have purchase, take the time to work out how many hours of labour it will have taken to earn the money to pay for it. Except, don’t use your hourly rate but your rate after tax and NI contributions. Here is an example:

You see a pair of shoes that you simply have to buy. It doesn’t matter that you already have shoes in every colour and for every occasion. These are the shoes of your dreams and a bargain at only £60. But, before you hand over the cash (or credit card), work out what they will really cost you by way of your time and energy:

If you work 40 hours a week at £8 an hour you will earn £320 a week, so those shoes are the equivalent of 7½ hour’s work.

Except…

Out of that £320 a week you will pay tax of £26 and National Insurance Contributions of £20.

Therefore, your take-home pay is not the £320 you earned but £274 – meaning your hourly rate after deductions is not £8 an hour but just £6.85 an hour. Those shoes are now the equivalent of almost 9 hour’s work. You’ve worked an extra hour and a half longer than you originally thought you had in order to earn the money you need to cover the cost of those shoes. You know, the shoes you don’t really need but think you deserve as a treat.

Before you make that purchase – or any purchase- get into the habit of asking yourself whether your time, including the extra time you spent working, is really worth the cost. And always remind yourself that the penny you saved is really worth more than the penny you earned.