Post on 27-Dec-2015
Welcome!
• Explain why it is important to save
• Determine goals for saving money
• Identify savings options
• Determine which savings options will help you reach your savings goals
• Recognize which investment options are right for you
Pay Yourself First• What does it mean to “pay yourself first”?
– Put money in savings before paying your bills
• Why would you want to save money before paying your bills?
• What are some of the things you might want to save money for?
Emergency SavingsFinancial Benefits
Impact <$500
ES >$500
ES
Bill payment
Concern paying monthly bills 70% 36%
Difficulty paying mtge or rent 42 16
Checking management
Not met mo. minimums past year 18% 13%
Overdrawn account past year 52 22
Credit card management
Carry a balance 74% 62%
Pay mo. minimum or somewhat more 51 35
Paid fee in past year 35 26
High-cost loans
Payday 8% 3%
Car title 7 3
Pawnshop 8 0
Psychological Benefits
Impact <$500
ES >$500
ES
Worried about personal finances in past year
85%
69%
Worried a lot 53 21
For worriers:
Lose sleep 64 42
Worse health 54 29
Less productive at work 42 23
Saving for Purchases
• Substitute savings for credit
• Determine purchase cost / time until purchase
• Make payments to your savings when vehicle loans are paid off
Retirement Savings
• www.choosetosave.org
• IRA savers credit
• Employer matched retirement = FREE MONEY
• Don’t rely on Social Security alone
Daily Decisions
One Coffee a Day =
$5
$25 week
One month’s rent
354 gallons of gas
$100 month
More than 3 car payments
$1,200 year
More than 2 months
of groceries &dining out
2 months of child care
How Your Money Grows
• Principal ~ what you save or invest
• Interest– Simple
principal x interest rate % x time
– Compound (principal + interest ) x interest rate %
Which Would You Want?
Year Principal
Interest
Ending Balance
1 $100 $7 $107
2 $100 $7 $114
3 $100 $7 $121
4 $100 $7 $128
5 $100 $7 $135
Total Interest
$35
Year Principal
Interest Ending Balance
1 $100 $7 $107
2 $107 $7.49 $114.49
3 $114.49 $8.01 $122.50
4 $122.50 $8.58 $131.08
5 $131.08 $9.18 $140.26
Total Interest
$40.26
Simple Interest Compound Interest
The Penny! 100% InterestDay 1 $0.01 Day 11 $10.24 Day 21 $10,485.76
Day 2 $0.02 Day 12 $20.48 Day 22 $20,971.52
Day 3 $0.04 Day 13 $40.96 Day 23 $41,943.04
Day 4 $0.08 Day 14 $81.92 Day 24 $83,886.08
Day 5 $0.16 Day 15 $163.84 Day 25 $167,772.16
Day 6 $0.32 Day 16 $327.68 Day 26 $335,544.32
Day 7 $0.64 Day 17 $655.36 Day 27 $671,088.64
Day 8 $1.28 Day 18 $1,310.72 Day 28 $1,342,177.28
Day 9 $2.56 Day 19 $2,621.44 Day 29 $2,684,354.56
Day 10 $5.12 Day 20 $5,242.88 Day 30 $5,368,709.12
Compounding interest is the 8th wonder of
the world!
A.P.Y.
Annual Percentage Yield• The amount of interest you will earn on a
yearly basis expressed as a percentage
• Includes the effect of compounding
• Should be used to compare saving products, not the interest rate
Rule of 72The time it will take for your $$$ to double.
$50 4% interest
72 ÷ 4% = 18 years
$500 Double in twelve years
72 ÷ 12 = 6%
Time is On Your Side
$3,000 a year
8 years
$24,000 total
$3,000 a year
34 years
$102,000 total
$964,129
vs.
$810,073
He added $78,000 more and ended up with $150,000
less!
Savings Per MonthCurrent Age Need to Save Monthly
25 $158
30 $263
35 $442
40 $754
45 $1,317
50 $2,412
55 $4,881
60 $12,931
Savings vs. Investing
TimeFrame
Risk Objective Type Liquidity
Return
Saving Short Very little
Emergencies
Large purchases
Savings Account
Money Market
Very Liquid
Low
Usually safe
Investing
Medium to long
Low to high
Retirement
Financial Freedom
Mutual Funds
Stocks
Real Estate
Depends Low to high
Not a guarantee
Savings
Savings AccountPays interest
May require minimum balanceLow opening deposit
Money MarketHigher interest rates
Higher opening depositHigher balance = higher rateCan access money if needed
Certificate of Deposit / Share CertificateFixed rates
Hold money for specific length of time (6 mos – 5 years)Can’t access money without penalty
Longer term = higher rate
Before You Invest
• Save money (6-month savings cushion)
• Talk to:
• Your bank or credit union
• A reputable financial advisor
• An investment firm
• Do your own research