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Unit 8 – Apply procedures for managing personal finances. Obj. 8.01 – Understand options for saving and investing Essential Questions • How are saving and investing similar and how are they different? • Why do some people find it so difficult to save and invest? • What “rules” can help build smart saving and investing habits? • What factors should be considered when selecting saving and investing options. SAVING vs. INVESTING SAVING DEFINITION •Setting aside present income for future use. •Portion of income NOT spent on consumption. INVESTING •Purchasing assets that earn interest over time. •Investments are assets purchased with the goal of increasing income. SAVING vs. INVESTING SAVING INVESTING PRIMARY •To make money •To make a profit PURPOSE available for over time. future needs. SAVING vs. INVESTING REASONS FOR SAVING INVESTING •To prepare for emergencies •To prepare for major purchases •To achieve financial goals •To pay for recurring expenses •To prepare for the future •To prepare for retirement SAVING vs. INVESTING SAVING INTEREST EARNINGS INVESTING •A bonus or side •The main focus benefit SAVING vs. INVESTING SAVING RETURN •Usually earns lower rates of interest INVESTING •Usually earns higher rates of interest SAVING vs. INVESTING SAVING LIQUIDITY •Money may be withdrawn at any time. INVESTING •Money may not be easily accessible SAVING vs. INVESTING SAVING VOLATILITY INVESTING •Usually not •Rate of return and volatile; rates are value may change fixed suddenly and significantly SAVING vs. INVESTING SAVING RISK INVESTING •Usually little risk •Usually more risk; of losing money but risks may be necessary to make a profit WHY Don’t/Can’t We Save?? • Not able to meet current needs and or wants • Not aware of how much needs to be saved for future goals • Over-relying on credit for emergencies • Over-relying on job security and insurance SAVING/INVESTMENT “RULES” • Find the Rule which helps YOU save/Invest!! “RULES” • View saving and investing as FIXED expenses –Like rent or car payment: • MUST be made • MUST be budgeted amount “RULES” • Rule of Saving: Pay yourself first; take a portion of your earnings for saving/investing before spending ANY of your paycheck • Easiest way to follow is payroll deduction or automatic bank draft!! “RULES” • 70-20-10 Saving and Investing Rule: for any money earned, spend 70%, save 20% and invest 10% • Tough Rule – but will help you get wealthy FAST “RULES” • Savings and Investing Plan: If your values or lifestyles make saving 30% unrealistic, start a plan to continually save/invest a fixed amount • Use a “step” approach; aim to increase % each year “RULES” • Rule of 72: Divide 72 by the rate of interest earned on an investment to find the number of years needed to double an amount of money invested. • Easy way to tell if your plan will meet your financial goal! FACTORS to CONSIDER • When choosing saving and investing options: –Liquidity –Minimum deposit/balance –Interest rate/rate of return –Risk factors –Transactions –Security Research Project • Research your assigned option and present why you would recommend your option Include the following information about your option: – Definition – Minimums – Withdrawals or liquidity – Interest rates/rates of return – Transactions – Security and risk factors OPTIONS • • • • • • • • Savings Accounts Money Market Accounts Certificates of Deposit Individual Retirement Accounts (IRAs) Stocks Bonds Mutual Funds Collectibles