Saving for the Future Chapter 10

Growing $$$$ Short-term Needs Expenses beyond your regular monthly items. Examples Emergencies: unemployment, sickness, accident. Vacations: short weekend trips Social Events: weddings, special occasions… Repairs: cars, appliances, plumbing, Major Purchases: car, major appliances, furniture, etc.

Growing $$: Why? Where? How? Long-term Needs Expenses that require years of planning and saving. Examples Home ownership Education Work, scholarships, student loans, grants Retirement Investing

Financial Security The amount of money you save will vary according to several factors such as… Amount of your discretionary/disposable income The importance you attach to savings Your anticipated needs and wants Your willpower, or ability to give up present spending in order to provide for your future

How Money Grows Principal Interest Represents earnings on principal. The amount of money you deposit into a savings account. Interest Represents earnings on principal. Financial institution pays you money for use of your money. As principal & interest grows, more interests accumulates. Compound Interest: interest paid on the original principal plus accumulated interest.

Interest Compounded Annually Year Beginning Balance Interest Earned 6% Ending Balance 1 $100 $6 $106 2 $6.36 $112.36 3 $6.74 $119.10

Where to Save? Commercial Banks Savings Banks Mutual savings bank Full-service Provide widest variety of banking services Most people keep checking & savings at same bank Examples: US Bank, 5/3 Bank, Chase Bank Savings Banks Mutual savings bank 2 Primary Services: Savings account Loans and real property Ex: Guardian Savings, Cheviot Savings

Interest Compounded Quarterly Year Beg. Bal. Rate Qtr.1 Qtr.2 Qtr.3 Qtr.4 Ending Balance 1 $100 .015 $1.50 $1.52 $1.55 $1.57 $106.14 2 $1.59 $1.62 $1.64 $1.66 $112.65 3 $1.69 $1.72 $1.74 $1.77 $119.57

Where to Save Savings and Loan Associations Credit Unions Primarily lends money for home mortgages. Ex: Third Federal Savings & Loan, Cincinnati Federal Credit Unions Not-for-profits established by groups of people such as employees in similar occupations who pool their money You must be member. Examples: Kemba Credit Union, Cincinnati Federal Credit Union

Where to Save? Brokerage Firms Online Accounts Buy and sell different types of securities. Securities are stocks and bonds issued by corporations or governments. Examples: Edward Jones, TD Ameritrade Online Accounts Online savings accounts that often work in tandem with your credit card.

Savings Options Regular Savings Account Certificate of Deposit (CD) High liquidity What is liquid? Once account is open, free to make withdrawals and deposits. Certificate of Deposit (CD) A deposit that earns a fixed interest rate for a specified length of time You must leave money in the CD for full time period Have maturity date: an investment becomes due for payment

Savings Options Money Market Account Offers more competitive interest rates than regular savings account. 2 kinds Money market deposit accounts Money market funds

Which is best for you? Look at 5 things: Liquidity Safety How quickly you can turn savings into cash when you want it. Safety You want your money to be safe from loss. Most financial institutions are insured by a government agency (FDIC)

Which is best for you? 3. Convenience 4. Interest-Earning Potential Location and services offered. 4. Interest-Earning Potential You want to earn as much interest as you can. Shop around for the rates. Savings account usually have low rates. 5. Fees and Restrictions Accounts and institutions have different rules. Check out and understand: withdrawal restrictions, minimum balances, service charges, other requirements

SAVE REGULARLY Direct Deposit Automatic Deductions Net pay deposited electronically into your bank account. Money available in account faster. Can have some going into savings and checking Automatic Deductions Money you have authorized your bank or other organization to move from one account to another. Collecting Coins and Cash Set aside spare change, and add to piggy bank.