Choose to Save. Advanced Level

Transcription

1 Choose to Save Advanced Level

2 What is Saving? Saving accumulagon of excess funds by intengonally spending less than you earn Results in Savings porgon of income not spent on consump4on (purchase of goods and services) Take Charge Today August 2013 Choose to Save Slide 2

3 Why Save? Your present self impacts your future self By saving money today you will have financial security in the future Emergency savings Cash set aside to cover the cost of unexpected events Short- term goals & expenses Pay for items that aren t part of a typical spending plan Financial security Lower stress Lower negagve emogons What are examples of emergency expenses? Take Charge Today August 2013 Choose to Save Slide 3

4 Saving Reduces Financial Risk and Uncertainty Savings is a monetary asset Contributes to net worth Very liquid (can quickly and easily be converted into cash) What monetary assets do you have for emergencies? Take Charge Today August 2013 Choose to Save Slide 4

5 How Much Money Should Be Saved? At least six months worth of expenses in emergency savings $2,000 monthly expenses 6 months $12,000 Depends on Income Dependents Job security Insurance coverage Take Charge Today August 2013 Choose to Save Slide 5

6 Saving on an Income & Expense Statement Saving is a form of unearned income when used to pay for an expense Saving is an expense when money is being saved Take Charge Today August 2013 Choose to Save Slide 6

7 My Saving Quest Part 1: My Wish List Brainstorm a personal wish list for yourself $ My Wish List Approximately how much does each item cost? $ $ Place a star «next to the item you would like to start saving for today Take Charge Today August 2013 Choose to Save Slide 7

8 IdenGfying Money to Save Examine current spending What changes can you make to reduce current spending? Ask yourself if items are a need or a want Consider small, oien daily, expenses Consider large, oien monthly, expenses What are ways to reduce spending? Take Charge Today August 2013 Choose to Save Slide 8

9 IdenGfying Money to Save Do It Yourself Increase Income Instead of paying someone Trade- off Decrease Expenses InvesGng Gme and skills What can you do yourself to save money? Take Charge Today August 2013 Choose to Save Slide 9

10 Create a Savings Plan What are you saving for? When will the goal be reached? Set a goal! How much needs to be saved? Is the goal realisgc? How can the goal be achieved? Take Charge Today August 2013 Choose to Save Slide 10

11 Make Sure Your Goal is RealisGc! Saving money for future Giving up the purchase of something in the present Ensure the trade- offs are realisgc and opportunity cost of what is given up to save is not too high! Why can saving be difficult? Take Charge Today August 2013 Choose to Save Slide 11

12 My Saving Quest Part 2: My Current Spending IdenGfy three changes you will make to your current income or spending today to start saving for the future Trade- off Trade- off Trade- off What is the trade- off for each change? Take Charge Today August 2013 Choose to Save Slide 12 Place a star «next to items with a realisgc opportunity cost

13 Pay Yourself First Your present self impacts you future self! Save a predetermined amount of money Do so each Gme you are paid Do so before using money for spending Make it automagc! Take Charge Today August 2013 Choose to Save Slide 13

14 Saved Money Provides For Your Future Self. and can increase in value! Time Value of Money - money available at the present 4me (today) is worth more than the same amount if received in the future Money Time Interest Rate Take Charge Today August 2013 Choose to Save Slide 14

15 What is Interest? Interest the price of money Interest rate percentage rate used to calculate interest Interest may be earned or paid Compounding interest earning interest on interest When you don t withdraw interest earned from an account the interest earns addigonal interest Depository insgtugons offer secure accounts to save money Take Charge Today August 2013 Choose to Save Slide 15

16 How Do Interest Rates Affect The Time Value of Money? Interest Rate More Money Earned $1,000 Saved for 5 Years with Compounding Interest $1, $1, $1, % 3% 5% Take Charge Today August 2013 Choose to Save Slide 16

17 How Does Time Affect the Time Value of Money? Time More Money Earned College Savings Fund Felix and his parents Saved for: 18 years Started when he was born Contributed: $50/month Total ContribuGon: $10,800 Savannah and her parents Saved for: 4 years Started when she was a freshman Contributed: $350/month Total ContribuGon: $16,800 Both earned the same interest rate Both currently have the same balance (about $19,500) Take Charge Today August 2013 Choose to Save Slide 17 Savannah s parents contributed significantly more

18 How Does Money Affect the Time Value of Money? Money More Money Earned Principal - original amount of money saved or invested 3% interest for 5 years Principal Value of Savings $100 $ $1,000 $1, $10,000 $11, Take Charge Today August 2013 Choose to Save Slide 18

19 Time Value of Money Magic! Years Year 20 Year 15 Year 10 Year 5 Year 1 Ini4al Investment Interest (Principal): Earned: $ $ at Interest Earned: $ % compounding Amount interest Investment is Worth: $ Interest Amount Earned: Investment $56.46 is Worth: $ Interest Amount Earned: Investment $33.26 is Worth: $ Interest Amount Earned: Investment $7.00 is Worth: $ Amount Investment is Worth: Year 50 Interest Earned: $ Amount Investment is Worth: $ $0.00 $1, $2, $3, Dollar Value Take Charge Today August 2013 Choose to Save Slide 19

20 Maximize Your Return! Save for as long as possible! Save as much as possible, as oien as possible! Time Money Save at the highest interest rate possible! Interest Rate Take Charge Today August 2013 Choose to Save Slide 20

21 My Saving Quest Part 3: ImplemenGng My Saving Quest How much can you realisgcally save each week? Write a goal Specific Measurable Aqainable RealisGc Time- bound How will you make the saving process automagc? How can your goal be reached using the Gme value of money? Take Charge Today August 2013 Choose to Save Slide 21

22 Savings is an EssenGal Component of a Financial Plan Reduces future financial uncertainty Reduces negagve emogons Requires trade- offs be made Best accomplished when automagc Opportunity for savings to increase in value Take Charge Today August 2013 Choose to Save Slide 22