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Saving for the Future

Saving for the Future. Chapter 10. Growing $$$$. Short-term Needs Expenses beyond your regular monthly items. Examples Emergencies: unemployment, sickness, accident. Vacations: short weekend trips Social Events: weddings, special occasions… Repairs: cars, appliances, plumbing,

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Saving for the Future

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  1. Saving for the Future Chapter 10

  2. Growing $$$$ • Short-term Needs • Expenses beyond your regular monthly items. • Examples • Emergencies: unemployment, sickness, accident. • Vacations: short weekend trips • Social Events: weddings, special occasions… • Repairs: cars, appliances, plumbing, • Major Purchases: car, major appliances, furniture, etc.

  3. Growing $$: Why? Where? How? • Long-term Needs • Expenses that require years of planning and saving. • Examples • Home ownership • Education • Work, scholarships, student loans, grants • Retirement • Investing

  4. Financial Security • The amount of money you save will vary according to several factors such as… • Amount of your discretionary/disposable income • The importance you attach to savings • Your anticipated needs and wants • Your willpower, or ability to give up present spending in order to provide for your future

  5. How Money Grows • Principal • The amount of money you deposit into a savings account. • Interest • Represents earnings on principal. • Financial institution pays you money for use of your money. • As principal & interest grows, more interests accumulates. • Compound Interest: interest paid on the original principal plus accumulated interest.

  6. Interest Compounded Annually

  7. Where to Save? • Commercial Banks • Full-service • Provide widest variety of banking services • Most people keep checking & savings at same bank • Savings Banks • Mutual savings bank • 2 Primary Services: • Savings account • Loans and real property

  8. Interest Compounded Quarterly

  9. Where to Save • Savings and Loan Associations • Primarily lends money for home mortgages. • Credit Unions • Not-for-profits established by groups of people such as employees in similar occupations who pool their money • You must be member.

  10. Where to Save? • Brokerage Firms • Buy and sell different types of securities. • Online Accounts • Online savings accounts that often work in tandem with your credit card.

  11. Savings Options • Regular Savings Account • High liquidity • What is liquid? • Once account is open, free to make withdrawals and deposits. • Certificate of Deposit (CD) • A deposit that earns a fixed interest rate for a specified length of time • You must leave money in the CD for full time period • Have maturity date: an investment becomes due for payment

  12. Savings Options • Money Market Account • Offers more competitive interest rates than regular savings account. • 2 kinds • Money market deposit accounts • Money market funds

  13. Which is best for you? • Look at 5 things: • Liquidity • How quickly you can turn savings into cash when you want it. • Safety • You want your money to be safe from loss. • Most financial institutions are insured by a government agency (FDIC)

  14. Which is best for you? 3. Convenience • Location and services offered. 4. Interest-Earning Potential • You want to earn as much interest as you can. • Shop around for the rates. • Savings account usually have low rates. 5. Fees and Restrictions • Accounts and institutions have different rules. • Check out and understand: withdrawal restrictions, minimum balances, service charges, other requirements

  15. SAVE REGULARLY • Direct Deposit • Net pay deposited electronically into your bank account. • Money available in account faster. • Can have some going into savings and checking • Automatic Deductions • Money you have authorized your bank or other organization to move from one account to another. • Collecting Coins and Cash • Set aside spare change, and add to piggy bank.

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