Three Savings Principles According to Benjamin Franklin

1. “No gains without pains.”[1]

The pressure to “keep up with the Joneses” is real, and many people spend too much on their current lifestyle without giving appropriate thought to the future.

The US Bureau of Economic Analysis reports that the personal savings rate fell to just 2.6% in 2005 before rising back to 8.3% in early 2019.[2] Furthermore, a 2019 study conducted by the Employee Benefit Research Institute found that 40% of workers in America have less than $25,000 in total savings and investments, and 19% of workers have less than $1,000 saved.

Saving for future goals may mean forgoing discretionary expenditures today (pain) to have resources available tomorrow (gain).

Principle #1 – An appropriate budget should include a percentage for savings.

Appropriate savings begins with developing goals for the future and investing appropriately. While the amount varies, a general rule of thumb is that a person at age 25 who starts saving 12-15% a year will have adequate funds at retirement.

2. “A penny saved is twopence clear.”[3]

Benjamin Franklin spent a great deal of ink discussing money, debt, and savings in the 1737 edition of Poor Richard’s Almanac. However, the quote that is often attributed to Franklin — “a penny saved is a penny earned” — is not quite correct.

In context, the original quote has more to do with not purchasing on credit. If you purchase on credit, not only have you spent the first penny, but you have also spent an additional penny in interest. Therefore, if you can avoid spending the first penny, you will have saved two.

Principle #2 – Avoid purchasing on credit when you can and pay cash.

Certain expenses will likely require financing with debt, such as a home purchase; however, proper budgeting will provide direction on how much house (or another financed purchase) can actually be afforded, in light of the goals that are already set.

3. “Time enough always proves little enough.”[4]

When it comes to savings, time is our friend. But, we have a tendency to think there is always enough time, and then lose the urgency to start saving when we should.

The best time to start saving for retirement is yesterday. The next best time is today. Albert Einstein is credited with calling the power of compounding the 8th wonder of the world. Assuming the same annual savings amount and the same rate of return, an individual who starts saving early in life and only saves for 10 years will have significantly more than the person who waits 10 years and then saves for the remainder of his lifetime.

Principle #3 – Start saving today and make it a regular habit.

There are a couple “rules of thumb” that are worth remembering when saving over time. The first is known as dollar-cost averaging. Investing will have its ups and downs; an investment may be less expensive one day and more the next. But, regular, habitual saving will average the costs out over time. Second, the law of compounding becomes more favorable the earlier one begins to take advantage of it, so start saving today with a CEP investment, currently offering rates up to 3.0% APR.

[1] Poor Richard’s Almanack, 1745

[2] Retirement Planning and Employee Benefits, 16th Ed., James F Dalton and Michael A Dalton. Copyright 2020 by Money Education. Page 29

[3] Poor Richard’s Almanack, 1737

[4] Poor Richard’s Almanack, 1747