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Savings and Investments Developed by Willie W. Schmidt Extension Agent Virginia Cooperative Extension Prince William Co

Savings and Investments Developed by Willie W. Schmidt Extension Agent Virginia Cooperative Extension Prince William County. Saving Money Investing Money. - Short-term needs - Long-term needs - Temporary - Permanent - Low return - Higher rate of return

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Savings and Investments Developed by Willie W. Schmidt Extension Agent Virginia Cooperative Extension Prince William Co

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  1. Savings and InvestmentsDeveloped byWillie W. SchmidtExtension AgentVirginia Cooperative ExtensionPrince William County

  2. Saving MoneyInvesting Money - Short-term needs - Long-term needs - Temporary - Permanent - Low return - Higher rate of return - Liquid - Less liquid - Safe; no risk of - Higher risk of principal principal

  3. Why Do People Save Money? • To generate income • To become debt free • To retire comfortably • To cope with emergencies • To pay for education or travel • To purchase a car, home, furniture, etc. • To establish security and peace of mind • To build a cushion for planned change in family or career

  4. Why Do People Fail to Save Money? • “I will start tomorrow.” • “I can’t plan that far ahead.” • “I can hardly make ends meet now.” • “I never was good at understanding money.” • “I’m waiting for the economy to stabilize.” • “If I’m lucky, I won’t have to think about my financial future.”

  5. Saving money should be a spending priority & a habit!

  6. Saving & InvestingGuideline Set aside 10% of income . . . gross or take-home. If not 10%, some amount to start the habit.

  7. Savings needed for . . . • emergencies • irregular expenses • major goals • investments

  8. Things To Do Before Saving & Investing • Prepare financial statements. • Set financial goals. • Develop a budget. • Establish a credit history. • Maintain adequate insurance coverage.

  9. Saving Tips That Work! • Kick a habit. • Clip coupons. • Collect loose change. • Study employee benefits. • Reduce or eliminate tax refund. • Pay off expensive credit card debt. • Work overtime or get part-time job for extra money to save. • Transfer funds from checking to savings accounts.

  10. FINDING DOLLARS TO SAVEAnnual Savings • $240 Clothing • $180 Credit Card Interest • $100 Insurance Policy Premiums • $120 Interest-Bearing Checking Account • $360 Eating Out • $1,000 SAVINGS

  11. Dollar Cost Averaging • Fixed amount of money invested at regular intervals. • Used to purchase mutual funds or other investments over a long period to time. • After time, you own more shares than if one lump sum investment was made at beginning.

  12. What’s The Best Alternative For Me?Criteria for Selecting A Saving & Investing Strategy • Safety of principal • Return on money • Current income • Capital growth • Liquidity • Marketability

  13. Best Alternative? • Size of investment • Frequency of contribution • Favorable tax advantage • Before or after tax dollars • Tax-deferred or tax-exempt • Time value of money

  14. Future Value of a $1,000 Lump Sum Investment

  15. $18,000 9 Years $70,000 35 Years Procrastination (Waiting to Start) $2,000 per Year at 9% +$109,236 Jill $579,488 Jack $470,249 22 30 31 65 Age

  16. Consider . . . • investment costs • borrowing privileges • management • time to spend on investments • knowledge of investments • stage of life cycle • risk tolerance

  17. Invest according to goals. Three goals • Preserve principal (safety) • Maximize current income • Growth of principal

  18. Goal: Preserve Principal (Safety) • Passbook Savings • Money Market Funds & Money Market Accounts • Certificates of Deposit (CDs) • Treasury Securities

  19. Goal: Maximize Current Income • Certificates of Deposit • Money Market Funds • Corporate & Municipal Bonds • U.S. Savings Bonds • Common and Preferred Stocks • Mutual Funds - stock and bond

  20. Goal: Growth of Principal • Common stock • Zero-coupon bonds • Growth mutual funds • Real estate • Precious metals • Company sponsored employee stock purchase plans • Corporate, government and municipal bonds

  21. CompoundingAnnual Percentage Yield (APY)Various Compounding Frequencies

  22. Rule of 72 72 = Years to double Interest rate investment 72 = Interest rate Years to required double investment

  23. Define your goals. Have money to invest. Seek advice. Know investment alternatives. Determine your risk tolerance; stay within “risk zone.” Diversify. Be realistic and ready to make changes. Minimize transaction costs. Keep records. Review investments. Never invest in something you don’t understand. Avoid investment fraud. Steps to Wise Investing

  24. Will the path you choose lead to economic security? The choice is yours.

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