Saving

Saving Basics Savings is the portion of current income not spent on consumption. Recommended to have a minimum of 3-6 months salary saved

Ways to Save Payroll deductions Extra change in jar Jar change into savings account Save wage increases

Ways to Save Determine needs and wants Pay Yourself First Pay bills on time Avoid check-cashing stores Remember retirement HOW TO BEGIN SAVING MONEY To help a person choose saving over spending money, money should not be viewed as what is remaining after current needs and wants have been satisfied. Pay yourself first is a popular and very effective saving strategy that can help individual’s choose saving over spending money. Paying yourself first means to set aside a portion of money (10-20% of net income is recommended) for saving each time a person is paid before using any of the money for spending. To successfully practice the pay yourself first strategy a person should set personal goals. Setting goals helps a person choose to save rather than spend money. A goal is defined as the end result of something a person intends to acquire, achieve, do, reach, or accomplish. Financial goals are specific objectives to be accomplished through financial planning and include saving money. Setting goals helps an individual identify and focus on items that are most important to them and then make decisions that help obtain those items. While in the process of setting goals, an individual should consider the trade-offs to those goals. A trade-off is giving up one thing for another. Every decision involves a trade-off. Being more financially secure in the future by saving is a trade-off to spending money in the present. If a person clearly understands what they are giving up in exchange for the benefits of saving money, then their saving goals will become more attainable and realistic. When considering the trade-offs to achieving savings goals, an individual should examine their current spending as well. Spending may have to be adjusted in order to reach a financial goal and practice the pay yourself first strategy. FEFE

Reasons to Save To purchase a planned good or service in the future College Education, new car, down payment on home Expenses- money paid out for needs & wants Eliminate future stress Emergencies Illness, losing a job, replacing large items Giving- charity, gifts Investing- Purchase of assets with goal of increasing future income Savings is the portion of income not spent on current expenditures. Because a person does not know what will happen in the future, money should be saved to pay for unexpected events or emergencies. An individual’s car may breakdown, their dishwasher could begin to leak, or a medical emergency could occur. Without savings, unexpected events can become large financial burdens. Therefore, savings helps an individual or family become financially secure. Money can also be saved to purchase expensive items that are too costly to buy with monthly income. Buying a new camera, purchasing an automobile, or paying for a vacation can all be accomplished by saving a portion of income. FEFE

Why People Don’t Save current consumption needs and wants aren’t met do not know how much they need to be saving Money in savings accounts earns poor interest rates Don’t need emergency money because they have credit easily available Have adequate insurance and job security

Saving vs. Investing Saving Savings accounts are more liquid than investment accounts Liquidity- how quickly and easily an asset can be converted into cash Generally get a low interest rate, often barely meeting inflation Inflation- steady rise in the general level of prices

Interest Interest – the amount of money that is either gained or lost Interest rate – the percentage used annually to calculate the total interest either gained or lost 8

Saving vs. Investing cont. The purchase of assets with the goal of increasing future income Investments are not as liquid as savings Rate on Investment (ROI), or annual return on an investment, including appreciation and dividends or interest usually higher than savings account Don’t start until saving plan in place

“Pay Yourself First” Put money away into a savings account or investment BEFORE you pay other bills or use for spending.

70-20-10 Rule Spend 70% of money you earn Save 20% of money you earn Invest 10% of money you earn

Assessment Create a bumper sticker, billboard, or print ad encouraging your peers to save.

Short Story Assignment Write a short story about a main character who works and saves to reach a financial goal. Be sure to include the feelings and emotions he/she experienced, as well as any setbacks, obstacles, or effective saving strategies. Needs to be 2-3 pages long (can be fiction) Due (A-day) Nov. 15th (B-day) Nov. 16th

Depository Institutions Commercial Bank Credit Union Savings and Loan Association 14

Commercial Bank Commercial Banks Available to a variety of consumers Usually the largest depository institutions Considered full-service depository institutions because offer a wide variety of services and products Available to a variety of consumers Examples – Wells Fargo, US Bank, Chase Bank 15

Credit Union Credit Unions Owned by members who share a common bond Non-profit cooperative depository institution Owned by members who share a common bond Examples – America First, Goldenwest, Wasatch Peaks. 16

Government Regulations That Protect Savers FDIC – Federal Deposit Insurance Corporation Insures each account in a federally chartered bank up to $100,000 per account. (dollar-for-dollar) Includes savings, checking, CD, Money Market. Does not insure stocks, bonds, mutual funds.

Government Regulations That Protect Savers NCUA – National Credit Union Administration Insures each account in a federal credit union up to $100,000 per account.

Banking Services 19

Checking Account Checking Account Tool used to transfer funds deposited into an account to make a cash purchase. Checking accounts may be non-interest or interest earning. Features may include: Minimum balance requirements; Charge transaction fees; Limited number of checks written monthly. Reduces the need to carry large amounts of cash.

Savings Account Savings Account Account to hold money not spent on consumption. Have a lower interest rate than other cash management tools May have minimum balances

Money Market Deposit Account A combination savings/investment plan in which money is used to purchase safe, liquid, securities - EXAMPLES: CD’s, Government Securities minimum balance requirement tiered interest rates- amount of interest earned depends on the account balance For example: a balance of $10,000 will earn a higher interest rate than a balance of $2,500.

Money Market Deposit Account continued limited to three to six transactions each month Features of may include: Minimum amount required to open the account often $1,000 balance falls below a specified amount earn a lower interest rate

Certificate of Deposit (CD) A deposit that earns a fixed interest rate for a specific length of time Interest rates vary depending upon specified time length. The longer the length, the higher the interest rate.

Certificate of Deposit continued Features may include: Range from seven days to eight years in length; Minimum deposits range from $100-$100,000; If funds are withdrawn before the expiration date, penalties are assessed; Different types to fit your needs Standard- fixed Flexible- can add money and withdraw on occasion free of charge

Savings Bonds A registered, non-transferable bond issued and backed by the U.S. Government "the All American Investment" easy way to save money safely get a good market return Rates change every May and November based on either current market rates or inflation.

Liquidity Liquidity How quickly and easily an asset can be converted into cash. Investors should: Invest in both liquid and non-liquid tools. Liquid assets are important for emergencies when cash must be quickly accessed. Cash management tools are protected by the U.S. Government against loss.

Liquidity Checking Account Most Liquid Savings Account Money Market Deposit Account Certificate of Deposit Savings Bond Least Liquid

Bank Critic Go to your banks website or call them on the phone. Look at the following: Checking account Do you make interest? Is there a way to make interest? Do you pay fees? Savings account Interest rate? What could you do to raise the interest rate? Fees? Write a summary of your banks benefits and how you could better use your bank to make more money with your money. (4 to 5 sentences)