19-1. Why should we save? Savings and Investment Basics Savings and investment activities Savings is the storage of money for future use. Try to deposit.

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Presentation transcript:

19-1

Why should we save?

Savings and Investment Basics Savings and investment activities Savings is the storage of money for future use. Try to deposit 10 % of income per year Down payment, emergencies. After building up savings most people start investing. When savings are invested and used, the economy benefits, how?

Three reasons to save Emergency fund Purchases Building wealth Benefits of having an emergency fund Less stress Prepared for the unexpected Don’t have to borrow money when a financial crisis comes up

Investing Investing means using your savings to earn more money. Determine Investment goals Current Income growth Long-term growth

Savings and Investment Basics cont The Growth of Savings Interest- The money you receive for letting others use your money. Simple interest- Principal x Rate x Time = Interest Compound Interest- is computed on the amount saved plus the previously earned interest. Can be compounded daily, monthly, yearly. calculator/lifeandmoney_investing/#/advanced_entry_form calculator/lifeandmoney_investing/#/advanced_entry_form

Evaluating savings and Investments Safety and Risk Savings accounts at most financial institutions are insured up to $250,000. Not all investments have the same degree of safety Stocks usually go up and down.

Diversification Company ACompany BCompany C

Diversification Diversification – to spread around one’s investment dollars among several different types of investments to help lower risk.

Evaluating savings and Investments Potential Return Yield- Percentage of money earned on your savings or investment over a year. Usually higher yields have higher risks of loss. Usually government investments pay less interest than private investments. Investors will not accept high risk unless it has high reward. Truth in Savings law- Requires financial institutions to give customers information comparing savings accounts.

Evaluating savings and Investments Liquidity- how fast an investment can be turned into cash. Taxes Most investments are taxed. If they are not taxed they are tax-exempt. Some are taxed before you invest your money. Some are tax-deferred until you take the money out of your investment.

Four factors to consider when investing. 1. Safety 2. Return 3. Liquidity 4. Taxes