PAY YOURSELF FIRST Introductory Level

What will happen tomorrow? Savings prepares us for unexpected events. Savings is the portion of income not spent on current expenses ideal for: Emergency vet visits Flat Tires Appliance breaking Medical emergencies not covered by insurance

What if savings aren’t available for emergency expenses? Debt may be used Credit cards, loans, or going without the item Financial Stress Unable to live the style one is accustomed to Give up going out with friends, participating in activities, etc.

What are reasons to save? The future is unpredictable Money should be saved to pay for unexpected events or emergencies Savings provides a state of well-being

What would you like to save money for? Fun reasons to save Vacation College Car New Outfit New Electronics Video Games What would you like to save money for?

How much savings is considered financially secure: Recommended Amount Example A household that has $2,000 per month of expenses should have at least $12,000 in savings $2,000 x 6 months At least six months worth of expenses

Steps to reach savings Save10-20% of net income 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? Safest Piggy Bank Depository Institution Jar Coffee Can Under a Mattress

Depository Institution What is a name of a depository institution in our community? Depository Institution is a business that offers financial services to people Money is insured from loss Offers accounts that earn interest

What is Interest? Interest - price of money Interest Earned-calculated percent of a total amount of money in an account This percent is the interest rate

Money Market Deposit Account Certificate of Deposit 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on a lump sum of money Specific time requirements When time period is complete, money and interest earned can be withdrawn Higher interest rates for longer time periods Money stored until needed Interest earning Minimum deposit often required Number of monthly withdrawals often limited

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

What affects TVM Interest Rate Amount $ Time Save for as long as possible! Begin saving early Amount $ Save as much as possible, as often as possible! Interest Rate Save at the highest interest rate possible!

What would you do with an extra $80? $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 What would you do with an extra $80?

Time Value of Money Magic! Year 20 Interest Earned: $111.07 Amount Savings is Worth: $386.97 Year 15 Interest Earned: $79.19 Amount Savings is Worth: $275.90 Initial Savings: $100.00 at 7% interest Year 1 Interest Earned: $7.00 Amount Savings is Worth: 107.00 Year 10 Interest Earned: $56.46 Amount Savings is Worth: $196.72 Year 5 Interest Earned: $33.26 Amount Savings is Worth: $140.26 Year 50 Interest Earned: $845.46 Amount Savings is Worth: $2945.70

Pay yourself first PYF Strategy Why? ALWAYS set aside money for saving before spending any money PYF Strategy Creates a habit & state of well being Why?

To successfully practice PYF, set goals Goal- End result of something a person intends to accomplish Financial Goal- Specific objectives to be accomplished through financial planning

Importance of goals in PYF Helps identify and focus on items that are most important Guides decision-making to help achieve what is most important Such as choosing saving for a vacation over spending money on a coffee

What is a trade-off you are willing to make to purchase a dream item? Being financially secure in the future requires one to trade-off frivolous spending in the present. Trade-off is giving up one thing for another Every decision involves a trade-off

Is the trade-off worth the goal? Examine Spending Adjust spending plan to meet goals Understanding why something is given up makes goals easier to reach.

Choose saving money for the future over spending money in the present.

Examine Current Spending “Pay Yourself First” Set financial goals Examine Trade-Offs Examine Current Spending

Because of an unknown future, save money to pay for unexpected events To be considered financially secure, save at least six months worth of expenses To reach this amount, save 10-20% of net income “PAY YOURSELF FIRST” Money saved at a depository institution is protected against loss and can earn interest

Take advantage of time value of money Save as much as possible, for as long as possible, at the highest interest rate possible! Save for your emergency fund first; then save to achieve goals Savings goals become more attainable when trade-offs and spending plans are examined