Download Secrets of Saving

The Secrets of Saving
“Get Ready to Take Charge of Your Finances”
Introductory Level
2.14.1.G1
What is Savings?
Savings - portion of income not spent on
current expenses
Do you know what will
happen tomorrow?
Because the future is unpredictable
Money should be saved to pay for
unexpected events or emergencies
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 2
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Why is it important to
save money?
1. Without savings,
unexpected events
can become large
financial burdens
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2. Helps people
become
financially secure
If an unexpected expense occurs, money
cannot be found in a scavenger hunt!
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 3
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
What are other reasons
a person would want to
save money?
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Buy items that are too expensive to be
purchased with monthly income
Vacation
Car
Furniture
What item would you like to save
money to purchase?
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 4
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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How much money should
a person save?
To be considered financially secure and have enough
money for emergencies
Recommended Amount
Example
At least six months
worth of expenses
• A household that has $2,000
per month of expenses
• Should have at least $12,000
in savings
• $2,000 x 6 months
Why would this amount of savings
be recommended?
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 5
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
2.14.1.G1
How can this amount of
savings be reached?
Recommended10-20% of net income saved until
appropriate amount of savings is reached
Net income –
(take home pay)
Income after taxes have been
taken out of a paycheck
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 6
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Where can money be
saved?
Coffee
Can
Piggy
Bank
Jar
Depository
Institution
Under a
Mattress
Which is the safest method?
Depository Institution!
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 7
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
2.14.1.G1
What is a depository
institution?
Depository institution - business that offers
financial services to people
What is a name of a depository
institution in your community?
Advantages to Saving Money
at a Depository Institution
Money is insured
from loss
Offer accounts that
earn interest
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 8
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
2.14.1.G1
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What is Interest?
Interest - price of
money
Depository institution
accounts may earn
money from interest
Interest earnedcalculate a percent of
total amount of money
in account
This percent is the
interest rate
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 9
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
2.14.1.G1
What accounts at depository
institutions earn interest?
Characteristics
Definition
Savings Account
Money Market
Deposit Account
Certificate of Deposit
Holds money not Pays a higher
Pays interest on a lump
spent on current interest rate than a sum of money
expenses
savings account
•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
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 10
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
2.14.1.G1
Time Value of Money
Value of money saved in
these accounts increases!
Time value of money- money paid in
future is not equal to money paid today
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 11
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Factors affecting the
Time Value of Money
Interest
Rate
Amount
of
Money
• Save as much as
possible, as often
as possible!
• Save at the
highest interest
rate possible!
Time
• Save for as long
as possible!
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 12
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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$500 saved at 3% interest
Amount of money
Year
account is worth
Initial amount saved
$500.00
1
$515.00
2
$530.45
3
$546.36
4
$562.75
5
$579.64
Use the time value of money to
your advantage!
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 13
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Time Value of Money Magic!
50
45
40
35
Years
30
25
20
15
10
5
1
Year 20
Year
15 at 7% interest
$111.07
Initial Savings:Interest
$100.00Earned:
Year
10 Earned:
Interest
$79.19
Amount
Savings
is Worth: $386.97
Year
5 Earned:
Interest
Amount
Savings
$56.46
is Worth: $275.90
YearInterest
1Amount
Earned:
Savings
$33.26
is Worth: $196.72
Interest
Earned:
$7.00is Worth: $140.26
Amount
Savings
Amount Savings is Worth: 107.00
Year 50
Interest Earned: $845.46
Amount Savings is Worth: $2945.70
0
$0.00
$1,000.00
$2,000.00
Dollar Value
© Family Economics & Financial Education –August 2010– Get Ready to Take Charge of Your Finances – Saving– Slide 14
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
$3,000.00
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How do you choose to save
money over spend money?
Pay Yourself First!
A
Strategy
• Set aside money for saving
before spending any money
• Save then spend!
Why?
• Creates a habit
• Saving is not what is left
at end of month
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 15
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
2.14.1.G1
To successfully practice
“pay yourself first”…
Set goals!
GoalEnd result of something a person
intends to accomplish
Financial GoalSpecific objectives to be accomplished
through financial planning
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 16
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Why is it important to
set financial goals?
Helps identify and focus on items that are most
important
Make decisions that help obtain
what is most important
Such as choosing to save over spend!
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 17
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
2.14.1.G1
What are you willing to
give up to obtain the item
you want to purchase?
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This is a trade-off!
Trade-off - giving up one thing for another
Every decision you make involves a trade-off!
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
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 18
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
2.14.1.G1
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
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 19
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
2.14.1.G1
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!
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 20
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Is there a secret to
saving money?
2.14.1.G1
Choose saving money for the
future over spending money
in the present
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 21
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
2.14.1.G1
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
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 22
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
What are the “secrets”
to saving money?
• Because of the unknown of the future, save
money to pay for unexpected events or
emergencies
• To be considered financially secure, save at least
six months worth of expenses
• To reach this amount, save 10-20% of net
income
• Money saved at a depository institution is
protected against loss and can earn interest
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 23
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
2.14.1.G1
What are the “secrets”
to saving money?
• Take advantage of the time value of money
• Save as much as possible, for as long as possible,
at the highest interest rate possible!
• Saving money is accomplished by practicing “pay
yourself first” and setting goals
• Savings goals become more attainable when
trade-offs and spending plans are examined
© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 24
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
2.14.1.G1