Chapter Two-Savings Saving: An exercise of character The five foundations of personal finance Understand the purpose of the emergency fund Three basic reasons to save money What are three reasons to save and more Long-term and short-term savings goals What is a sinking fund and what is it used for

Chapter Two-Savings The Power of Compound Interest How compound interest works The impact of the annual percentage rate What is simple interest Impact of starting to save NOW!

Before We Begin Agree or Disagree? The amount of money you save depends on how much money you earn. You will save more when you earn more. A saving account at your bank is the best place to put your emergency fund. The two biggest factors in compound interest and building wealth are time and the initial amount of the investment.

Before We Begin Agree or Disagree? It is okay to use your emergency fund to pay cash for big purchases such as a TV or a cell phone. You should pay yourself first before you pay your bills. What are some initial thoughts about saving? What do you want to learn about saving?

Vocabulary Compound interest-Interest paid on interest previously earned. Can be credited daily, monthly, quarterly, semi-annually, or annually. Interest-Money the principal (original investment) earns Emergency fund-$500 in readily available cash to be used in the case of an emergency. Interest rate-Percentage paid to a lender for the use of borrowed money. Five foundations-Save $500 emergency fund, Get out of Debt, Pay cash for Car, Pay Cash for College, Build Wealth and Give. Sinking fund-Saving money overtime for a large purchase. Amoral-without moral quality; neither moral nor immoral

The Five Foundation Dave Ramsey’s Five Foundation Principles for Financial Peace. Save a $500 Emergency Fund Get Out of Debt Pay Cash for your Car Pay Cash for College Build Wealth and Give

The First Foundation Save a $500 emergency fund What's and emergency fund? Emergency Fund Now and Later Separate from your Savings Account Not an investment Where should you keep your emergency fund? Ways to save $500 dollars quickly? Allowance, Sale something, Become an Entrepreneur, Get a job, etc.

Discussion How can having an emergency fund help you to protect and grow your wealth? What has kept you from saving in the past? Based on your recent experiences how can you change this?

Saving Money the American Way Are Americans Good Savers? 2006 Negative Savings Rate -0.6% 2008 Positive Savings Rate 7.0% 2010 Positive Savings Rate 5.5% 2012 Positive Savings Rate 3.3% What was the trend over this six year period of time? 2015 Positive Savings Rate 4.0%

Saving Money the American Way Critical Thinking: Cause and Effect Cause Effect Strong economy; low unemployment; high-paying jobs; Americans have increased cash flow. Low Savings Rate Weak economy; high unemployment; low-paying jobs; Americans have reduced cash flow. Increased Savings Rate

Saving Money the American Way Answer the following: Explain what is wrong in this cause/effect relationship in Americans’ money saving behavior. What should be the cause of one’s money saving habits? How is it that Americans are able to save a larger portion of there income when the economy is weak, unemployment is high, and income is generally lower?

Three Basic reasons to save Money Emergency Fund Purchases Wealth Building Instead of using credit save up and pay cash for all of your major purchases. Sinking Fund Why do you think so many people borrow for large purchases rather than using a sinking fund?

Three Basic reasons to save Money Wealth Building Key ingredients: time and discipline Where should you place this wealth building money? Interest-bearing Accounts Time Value of Money This principle suggests that a certain amount of money today has different buying power than the same amount of money in the future. This is due to two things: The opportunity cost to gain interest on that money over time and inflation which will drive the prices up of goods and services over time, thereby changing the "value" of money.

Compound Interest Review Quiz Vocabulary Key ingredients to building wealth: Being able to tell yourself NO, Discipline and time. Building Wealth is a marathon not a sprint. Why? How important are sinking funds to your financial future? What is the Time value of Money?

Compound Interest Compound Interest vs. Simple Interest Interest-Money the principal (original investment) earns Compound Interest-Interest paid on interest previously earned and original investment. https://m.youtube.com/watch?v=wf91rEGw88Q Ben and Arthur example:

Ben and Arthur

Ben and Arthur

Compound Interest Formula START EARLY!!!! Compound Interest Formula FV=PV (1+r/m)mt (raised to the mt power) Compounded annually, semiannually and monthly. What does this mean. Interval or time between occasions at which interest is added; this could be yearly (annually), every 6 months (semiannually) or monthly (some bank accounts) FV=Future value, PV=Present Value, r=rate of interest (expressed as a decimal; 5% is .05 or 12% is .12), m=The number of times per year the interest is compounded (monthly, annually, semiannually), t=The number of years you leave it invested

Examples $10,000, Compounded monthly, 7% interest, Invested 20 years $40,387.38 $5,000, Compounded annually, 12% interest, Invested 10 years $15,529.24 $1,500 , Compounded semiannually, 6% interest, Invested 6 years $2138.64

Take Away What is compound interest? How can compound interest help you grow wealth? What excites you most about investing? Explain how Ben ended up with more money than Arthur? Define Inflation? Explain the time value of money?