Unit 3 Financial Planning INVESTING: Making Money Work for You

What are we learning today? Understand the difference between saving and investing. Understand the time value of money. Be able to compare investment options. Understand what a stock is.

Does $ Grow on Trees?

It takes $ to Make Money! Money grows on other money.

Saving Investing P.Y.F.- Pay Yourself First What to do with the money? Put it under your mattress?

What to do with our money? Consider Saving or Investing it. Saving what people usually do to meet short-term goals. Investing means you’re setting your money aside for longer-term goals

Saving Your money is very safe in a savings account, and it usually earns a small amount of interest. Easy to get our money when you need it.

Investing No guarantee that the money you invest will grow. Normal for investments to rise and fall in value over time. Long run- investments can earn a lot more than you can usually make in a savings account.

Best reason for Investing Your money is making money for YOU! Any gain gets you that much closer to your financial goals. And you did not have to do anything for it!

Lots of ways to invest $ Real Estate Stocks Bonds Mutual Funds

Investing in Stocks also known as an equity or a share What is a stock? also known as an equity or a share is a portion of the ownership of a corporation.

You buy a share of stock You now OWN part of the company! Example You buy 1 share of stock in McDonald’s-you now are a shareholder—you own part of the company- More shares you buy—more ownership you have

Why buy stocks? TO MAKE MONEY over a longer period of time than putting it in a savings account.

Is a $1 always worth a $1? Sometimes it is more Sometimes it is less Value of Dollar changes dramatically, depending on when you get it and what you do with it.

Time Value of Money TIME is a critical variable (part) in the exact value of a dollar. Time Value of Money Refers to the relationship among time, money, and rate of interest.

Time Value of Money You have $100 today. If you keep it in your dresser drawer, will you still have a $100 in a year? Yes, but $100 in a year may buy less than it would today because of inflation.

Time Value of Money-Inflation Inflation- rise in the cost of things over time Inflation decreases the spending / purchasing power of each dollar you have.

Inflation You buy a candy bar for 50 cents. A year later, you go to buy the same candy bar and it's 55 cents. You still have only 50 cents, but the price of the candy bar has gone up.

Inflation How much does a gallon of milk cost? $2.56 in 1996 $3.83 Today

Time value of money Dresser drawer with $100 Versus Putting it in a savings account that pays 3% a year.

Investing in savings account How much would we have if we put $ into a savings account at 3% a year, in one year? Interest = Principal x Interest Rate x Time ? = $100 x .03 x 1 year

Time Value of Money Earned Interest Payment you receive for allowing a financial institution or corporation to use your money.

Calculating Earned Interest Formula Interest = Principal x Interest Rate x time What if savings account where we put our money was paying 7% instead of 3%-How much would our $100 be worth in a year?

Time Value of Money The three elements Rate of Interest Help you reach your financial goals.

Time Value of Money 1. The more money you have to save or invest, the more money you are likely to earn. 2. The higher the rate of interest you earn, the more money you are likely to have. 3. The sooner you invest your money, the more time has to make new money.

Questions?