The Secrets of Saving

Do you know what will happen tomorrow? What is Savings? Savings - portion of income not spent on current expenses Do you know what will happen tomorrow? Because the future is unpredictable Money should be saved to pay for unexpected events or emergencies

Why is it important to save money? 1. Without savings, unexpected events can become large financial burdens 2. Helps people become financially secure If an unexpected expense occurs, money cannot be found in a scavenger hunt!

What are other reasons a person would want to save money? Buy items that are too expensive to be purchased with monthly income Vacation Car Furniture What item would you like to save money to purchase?

How much money should a person save? To be considered financially secure and have enough money for emergencies Recommended Amount Example At least six months worth of expenses A household that has $2,000 per month of expenses Should have at least $12,000 in savings $2,000 x 6 months Why would this amount of savings be recommended?

How can this amount of savings be reached? Recommended- 10-20% of net income saved until appropriate amount of savings is reached Net income – (take home pay) Income after taxes have been taken out of a paycheck

Where can money be saved? Piggy Bank Coffee Can Depository Institution Under a Mattress Jar Which is the safest method? Depository Institution!

What is a depository institution? Depository institution - business that offers financial services to people What is a name of a depository institution in your community? Advantages to Saving Money at a Depository Institution Money is insured from loss Offer accounts that earn interest

What is Interest? Interest - price of money Depository institution accounts may earn money from interest Interest earned- calculate a percent of total amount of money in account This percent is the interest rate

What accounts at depository institutions earn interest? Savings Account Money Market Deposit Account Certificate of Deposit Definition Characteristics Holds money not spent on current expenses Pays a higher interest rate than a savings account Pays interest on a lump sum of money Money stored until needed Interest earning Minimum deposit often required Number of monthly withdrawals often limited Specific time requirements When time period is complete, money and interest earned can be withdrawn Higher interest rates for longer time periods

Value of money saved in these accounts increases! Time Value of Money Value of money saved in these accounts increases! Time value of money- money paid in future is not equal to money paid today

Factors affecting the Time Value of Money Save for as long as possible! Amount of Money Save as much as possible, as often as possible! Interest Rate Save at the highest interest rate possible!

Use the time value of money to your advantage! $500 saved at 3% interest Year Amount of money account is worth Initial amount saved $500.00 1 $515.00 2 $530.45 3 $546.36 4 $562.75 5 $579.64 Use the time value of money to your advantage!

Time Value of Money Magic! Year 10 Interest Earned: $56.46 Amount Savings is Worth:$196.72 Initial Savings: $100.00 at 7% interest Year 1 Interest Earned: $7.00 Amount Savings is Worth: 107.00 Year 15 Interest Earned: $79.18 Amount Savings is Worth: $275.90 Year 20 Interest Earned: $111.07 Amount Savings is Worth: $386.97 Year 5 Interest Earned: $33.26 Amount Savings is Worth: $140.26 Year 50 Interest Earned: $845.46 Amount Savings is Worth: $2945.70

How do you choose to save money over spend money? Pay Yourself First! A Strategy Set aside money for saving before spending any money Save then spend! Creates a habit Saving is not what is left at end of month Why?

To successfully practice “pay yourself first”… Set goals! Goal- End result of something a person intends to accomplish Financial Goal- Specific objectives to be accomplished through financial planning

Why is it important to set financial goals? Helps identify and focus on items that are most important Make decisions that help obtain what is most important Such as choosing to save over spend!

What is a trade-off to saving money for the future? What are you willing to give up to obtain the item you want to purchase? This is a trade-off! Trade-off - giving up one thing for another Every decision you make involves a trade-off! What is a trade-off to saving money for the future? Being more financially secure in the future by saving money is a trade-off to spending money in the present

You identified trade-offs that you would make to obtain the item you want to purchase. Do any of those trade-offs affect your spending? When considering trade-offs to financial goals Examine spending Adjust spending to reach financial goals

Why is it important to examine trade-offs and spending when setting financial goals? Knowing what is given up to receive benefits from goals Makes goals easier to accomplish!

Is there a secret to saving money? Choose saving money for the future over spending money in the present

In order to choose saving money over spending money… “Pay Yourself First” To successfully practice this strategy… Set financial goals Examine trade-offs Examine current spending

What are the “secrets” to saving money? Because of the unknown of the future, save money to pay for unexpected events or emergencies To be considered financially secure, save at least six months worth of expenses To reach this amount, save 10-20% of net income Money saved at a depository institution is protected against loss and can earn interest

What are the “secrets” to saving money? Take advantage of the time value of money Save as much as possible, for as long as possible, at the highest interest rate possible! Saving money is accomplished by practicing “pay yourself first” and setting goals Savings goals become more attainable when trade-offs and spending plans are examined