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The Secrets of Saving. Get Ready to Take Charge of Your Finances. What is Savings?. Do you know what will happen tomorrow?. Savings - portion of income not spent on current expenses. Why is it important to save money?.
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The Secrets of Saving Get Ready to Take Charge of Your Finances
What is Savings? Do you know what will happen tomorrow? Savings -portion of income not spent on current expenses
Why is it important to save money? If an unexpected expense occurs, money can’t be found in a scavenger hunt!
What are other reasons a person would want to save money? Furniture Vacation Car What item would you like to save money to purchase?
How much money should be saved? • A household that has $2,000 per month of expenses • Should have at least $12,000 in savings • $2,000 x 6 months At least six months worth of expenses Why would this amount of savings be recommended?
How can this amount of savings be reached? Net income – (take home pay) Income after taxes have been taken out of a paycheck
Where can money be saved? Coffee Can Piggy Bank Depository Institution Under a Mattress Jar Which is the safest method? Depository Institution!
What is a depository institution? What is a name of a depository institution in your community? Money is insured from loss Offer accounts that earn interest Depository institution - business that offers financial services to people
What is Interest? Depository institution accounts may earn money from interest Interest earned- calculate a percent of total amount of money in account This percent is the interest rate
What accounts at depository institutions earn interest? Holds money not spent on current expenses Pays a higher interest rate than a savings account Pays interest on a lump sum of money • Money stored until needed • Interest earning • Minimum deposit often required • Number of monthly withdrawals often limited • Specific time requirements • When time period is complete, money and interest earned can be withdrawn • Higher interest rates for longer time periods
Time Value of Money Time value of money- money paid in future is not equal to money paid today
Time Value of Money Magic! Year 20 Interest Earned: $111.07 Amount Savings is Worth: $386.97 Year 15 Interest Earned: $79.19 Amount Savings is Worth: $275.90 Initial Savings: $100.00 at 7% interest Year 1 Interest Earned: $7.00 Amount Savings is Worth: 107.00 Year 10 Interest Earned: $56.46 Amount Savings is Worth: $196.72 Year 5 Interest Earned: $33.26 Amount Savings is Worth: $140.26 Year 50 Interest Earned: $845.46 Amount Savings is Worth: $2945.70
How do you choose to save money over spend money? • Set aside money for saving before spending any money • Save then spend! • Creates a habit • Saving is not what is left at end of month Why? Pay Yourself First!
To successfully practice “pay yourself first”… Goal- End result of something a person intends to accomplish Financial Goal- Specific objectives to be accomplished through financial planning Set goals!
Why is it important to set financial goals? Make decisions that help obtain what is most important Such as choosing to save over spend!
What are you willing to give up to obtain the item you want to purchase? What is a trade-off to saving money for the future? Being more financially secure in the future by saving money is a trade-off to spending money in the present This is a trade-off! Trade-off - giving up one thing for another Every decision you make involves a trade-off!
You identified trade-offs that you would make to obtain the item you want to purchase. Do any of those trade-offs affect your spending? When considering trade-offs to financial goals Examine spending Adjust spending to reach financial goals
Why is it important to examine trade-offs and spending when setting financial goals? Knowing what is given up to receive benefits from goals Makes goals easier to accomplish!
Is Saving Money a Secret? Choose saving money for the future over spending money in the present No! But it does require a person to:
In order to choose saving money over spending money… “Pay Yourself First” To successfully practice this strategy… Set financial goals Examine trade-offs Examine current spending