The Role of Savings Benefits of Savings Chapter
The Role of Savings Benefits of Savings Chapter 12
Benefits of Savings · Savings: setting aside present income for future use · Savings can help in two ways: · 1. It allows you to accumulate money for future use
Benefits of Savings · 2. Money can be put to work for you by earning interest. Even small amounts saved now will benefit you later · Savings is closely related to another financial principle
Benefits of Savings · Investing: committing money for the purpose of making a profit over time. · Unlike savings it requires you to take risks with your money · However investing has the potential to earn more.
Benefits of Savings · Reasons for saving: · 1. Emergencies- no matter how careful you are, emergencies do happen · 2. Recurring expenses: bills, birthdays, anything that recurs on a regular basis
Benefits of Savings · 3. Future Purchases: saving for something you want but do not have the money at present. · Saving means delaying purchases, many do not wait and use credit
Benefits of Savings · This can lead to increased spending for three reasons · 1. Using credit means you may incur finance charges, which increase the cost of the item
Benefits of Savings · 2. You lose the income that could be earned by keeping cash in your savings account · 3. While credit makes it easy to buy, saving will give you time to decide if the purchase is right for you.
Benefits of Savings · Financial Goals: can be different at different stages of your life · College, marriage, families, are just a few examples · One that also must be kept in mind is >>>>
Benefits of Savings · Retirement: you are expected to live well beyond your retirement age. To live comfortably you must prepare and plan ahead · To do this you will need a plan
Benefits of Savings · Savings Plan: a step by step approach for putting money aside in savings
Benefits of Savings · Steps to Saving: · 1. Decide what you are saving for · 2. Set a specific goal- amount of money and time frame
Benefits of Savings · 3. Break your long term goals into short term goal · Ex: $1000 in 6 months, you must save $42 a week, is that realistic? · 4. Save regularly and consistently
Benefits of Savings · Savings amounts must be realistic. Watch your · Discretionary income: the amount available to spend after taxes and other obligations are paid. (rent, utilities etc)
Benefits of Savings · · · Ideas for saving: 1. Pay yourself first 2. Automatic savings plan 3. Direct deposit 4. Payroll deduction
Benefits of Savings · 5. Put your money to work for youin other words put it into an interest bearing account · 6. Keep savings goal in mind-find ways to remind yourself to keep you motivated toward reaching your goals
Benefits of Savings · Most importantly!!! · Stick to your plan and follow through with it
Benefits of Savings · Accounts can differ in how interest calculations are made Two basic methods · 1. Simple interest-is interest calculated only on the money you have deposited, not on prior interest earned
Benefits of Savings · 2. Compound interest- is interest calculated on both the deposits made and prior interest earned. In other words interest is paid on the interest · Most banks use this method
Benefits of Savings · APY= Annual percentage yield-this figure tell the consumer the actual annual rate at which interest is earned
Benefits of Savings · Rule of 72: is a quick way to evaluate an interest rate · This can be done by dividing 72 by the interest rate. ( APY when interest is compounded) · The answer is the approximate number of years to double your money
Benefits of Savings · When choosing a savings plan we must look at options, safety, risk, fees etc. ALSO · Liquidity-the ease with which savings and investments can be turned into cash
Benefits of Savings · Things to know: · Terms-a period of time which money must be kept on deposit · Money Market Accounts-deposits are invested by the bank Higher yields, more restrictions
Benefits of Savings · Certificates of Deposits-CD · A certificate issued by bank to indicate that money has been deposited for a certain term · Will also show interest rate, amount deposited, length of term
Benefits of Savings · Savings Bonds · Nontransferable debt certificates issued by the U. S. Treasury · You are loaning money to the government · Series EE can be purchased for half the face value
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