If this is your first time visiting, check out the story behind this blog. Otherwise, please join the others by subscribing to my RSS feed or get updates via email so you don't miss any personal finance articles!

I was discussing taxes and savings with my co-worker, and one of the topics that came up was how much a dollar saved is actually worth.  In the end, we agreed that saving a dollar is worth much more than earning a dollar since it is after taxes.  We figured that we wouldn’t be able to figure this out off the top of our heads so we decided to both go home and figure it out this weekend.  One of the ways to check how much the saving is actually worth in terms of additional salary increase is to go to your last year’s tax return and check how much $1000 of extra income will be taxed.

So I fired up my online tax preparation software and put in a $1000 W-2 with no social securities or taxes withheld.  Here are the interesting results:

Based upon the above results, $657 ($1000 - $343) is left for every $1000 earned.  This is not even counting social security deductions!  Assuming there is none for this simple example, every $1000 I save would be worth a raise of $1522.07 ($1000/$657 * $1000).  So for every dollar that I am able to save equates to getting a raise of $1.52.

On a side note, I always thought that I was in the 25% tax bracket (or so they want me to think).  Instead, I am really somewhere close to being taxed 34% of my income.

I encourage you to try this exercise for yourself so you know how much your savings are actually worth!