Presentation on theme: "Bell Ringer: pg. 28 True/False"— Presentation transcript:
1Bell Ringer: pg. 28 True/False Adam started saving $50 per month when he turned 18, while Beth started saving $100 per month when she turned 24. They both earn 6% on their money. Beth will have more money by the time they both turn 30.A dollar today is worth less than a dollar in the future.The higher the interest rate, the less time it takes to reach a savings goal.
3Saving vs Investing Saving: short term goals money very safe Earns a small amount of interestEasy to get money when you need itInvesting: longer term goalsNo guarantee money will growNormal for investments to rise and fall invalue over timeLong-run can earn more than savings
4Savings and Investments UniqueSavingsFeaturesUniqueInvestmentFeaturesCommonFeaturesWhat are some features common to both investments and savings?3-A
5The Advantage of Starting Early “You” invest $2,000 every year in an account that earns 7% each year for 10 yearsYou let your money sit – still earning 7% - until age 65Total Investment = $20,000“Your Sister” waits until she is 31 – did the same thing you did - 7% for 35 years until age 65Total Investment = $70,000Who has more money?You = $361,418 Your Sister = $276,474
6Time Value of MoneyThe more money you have to save ore invest, the more money you are likely to earnThe higher the rate of interest you earn, the more money you are likely to haveThe sooner you invest your money, the more time it has to make new money
8Interest = Principal x interest rate x time Earned Interest – payment you receive for allowing a financial institution to use your moneySimple Interest – a “simple” fee paid to you on your principalInterest = Principal x interest rate x timeExample:You open a savings account with $1,000 at a 3% simple APR. What will you earn in interest in the first year?$1,000 x .03 x 1 = $30 interest earned every year
9What will you start with in year 3? Compound Interest***One of the MOST POWERFUL principals in personal finance! ***Earning interest on interestEach time your interest compounds, it gets added back to your account and becomes part of your principalExample:$1,000 x .05 x 1 = $50 interest in year one$1,050 x .05 x 1 = $52.50 interest earned in year twoWhat will you start with in year 3?
10CompoundingYou can use this formula to calculate compound interest: A = P (1 + i) A = amount in the account P = principal I = interest rate N = number of years compounded How much will you have after 5 years if you put $100 principal in account earning 10%n
12Rule of 72 72 = 72 = Years Needed to Double Investment Interest Rate Required=Years Needed toDouble Investment3-H
13Bell Ringer: pg. 281. Adam started saving $50 per month when he turned 18, while Beth started saving $100 per month when she turned 24. They both earn 6% on their money. Beth will have more money by the time they both turn 30.FALSE – Although they both invested $7,200 over the years, the power of compound interest was working longer for Adam, so he will have more money when they turn 30.
14Bell Ringer: pg. 282. A dollar today is worth less than a dollar in the future.FALSE. A dollar is worth more today than a dollar in the future because of inflation.
15Bell Ringer: pg. 28The higher the interest rate, the less time it takes to reach a savings goal.TRUE. The higher the rate, the faster the money will grow, and the sooner you will reach a savings goal.