Choose to Save. Advanced Level

Transcription

1 Choose to Save Advanced Level

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

3 Why Save? Money-in-Plain-English 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 negative emotions 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 Identifying 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, often daily, expenses Consider large, often monthly, expenses What are ways to reduce spending? Take Charge Today August 2013 Choose to Save Slide 7

8 Identifying Money to Save Do It Yourself Increase Income Instead of paying someone Trade-off Decrease Expenses Investing time and skills What can you do yourself to save money? Take Charge Today August 2013 Choose to Save Slide 8

9 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 realistic? How can the goal be achieved? Take Charge Today August 2013 Choose to Save Slide 9

10 Make Sure Your Goal is Realistic! Saving money for future Giving up the purchase of something in the present Ensure the trade-offs are realistic 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 10

11 Pay Yourself First Your present self impacts you future self! Save a predetermined amount of money Do so each time you are paid Do so before using money for spending Make it automatic! Take Charge Today August 2013 Choose to Save Slide 11

12 Saved Money Provides For Your Future Self. and can increase in value! Time Value of Money - money available at the present time (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 12

13 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 additional interest Depository institutions offer secure accounts to save money Take Charge Today August 2013 Choose to Save Slide 13

14 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 14

15 How Does Time Affect the Time Value of Money? Time More Money Earned Felix and his parents Saved for: 18 years Started when he was born Contributed: $50/month Total Contribution: $10,800 College Savings Fund Savannah and her parents Saved for: 4 years Started when she was a freshman Contributed: $350/month Total Contribution: $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 15 Savannah s parents contributed significantly more

16 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 16

17 Years Time Value of Money Magic! Year 20 Year 15 Year 10 Year 5 Year 1 Initial 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 17

18 Maximize Your Return! Save for as long as possible! Save as much as possible, as often as possible! Time Money Save at the highest interest rate possible! Interest Rate Take Charge Today August 2013 Choose to Save Slide 18

19 Savings is an Essential Component of a Financial Plan Reduces future financial uncertainty Reduces negative emotions Requires trade-offs be made Best accomplished when automatic Opportunity for savings to increase in value Take Charge Today August 2013 Choose to Save Slide 19