8.1 Preparing for a Savings or Investment Program Ali Cayabyab Claxton Personal Finance/ Green

Establishing Your Financial Goals  Why are financial goals important to your future?  Think about your future…  Do you plan on owning a home?  Do you want to retire?  Establishing goals and having discipline along the way are important when saving money.  Emergency Fund: a savings account that you can access quickly to pay for unexpected expenses or emergencies.

Your Goals and Values  Your goals should correspond with your values.  Two extremes:  Quick Savers  Quick Spenders  Try finding a happy medium  Spend wisely, and remember to keep you savings in mind.

Outlining Goals  When determining your goals, ask yourself questions:  How do I want to spend my money?  How much money do I need to reach my goal?  Am I wiling to sacrifice in order to save?  Keep in mind that even a small amount of money can earn interest

Performing a Financial Check-Up  How can you assess the health of your finance?  Perform regular financial check-ups  1. Balance your budget  2. Have insurance  3. Start an emergency fund  4. Have other sources of cash

Money to Get Started  What are some sources of money to invest?  Remember  Pay yourself first  Employer-Sponsored Retirement Programs  Elective Savings Programs  Special Savings Effort  Gifts, inheritances, and Windfalls

The Value of Long-Term Investment Programs  Why should you invest in a long-term program?  The amount of money you have or your age should not influence your decision  Time value of money: the increase in an amount of money due to interest earned over time  Example:  With a 4% rate of return, an individual can start with $2,000 and earn up to $190,052 after 40 years

Making Investment Decisions  What are the factors you should consider when choosing investments?  Safety and Risk  Speculative Investment: a high-risk investment that might earn a large profit in a short time  Five Components of Risk  Inflation, interest rate, business failure, financial market, global investment  Dividends: distributors of money, stock, or other property that a corporation pays to stockholders  Investment Income

Making Investment Decisions (cont…)  Investment Growth  Retained earnings: profits that a company reinvests, usually for expansion or to conduct research and development  Investment Liquidity  Investment liquidity: the ability to buy or sell an investment quickly without substantially reducing its value.  Example: a passbook savings account

In Conclusion  Laying a foundation for your savings or investment program will help ensure that you meet your future financial goals.  Establish goals for a savings or investment program  Obtaining funds for investing  The factors that affect your investment choices

Activity Preparing for a Savings or Investment Program Trivia

True or False?  Your emergency fund should be a savings account that is difficult to withdraw money from

False!  Your emergency fund should be easy to access, although you should only withdraw funds in an emergency.

Fill in the Blank  There are typically _____ components of risk.

Five  1. Inflation  2. Interest Rate  3. Business Failure  4. Financial Market  5. Global Investment

Find the Missing Step  Performing a Financial Check-up  1. Balance your budget  2. Have insurance  3. Start an emergency fund  4. _____________________

Have Other Sources of Cash  A source might be a line of credit with a financial institution or cash advance capability from a credit card company. Use it only for serious emergencies.

Multiple Choice  What is the best way to save money for your savings or investment program?  A. Save/ Invest as much of each paycheck as possible  B. Spend every cent you earn, leaving no money for a savings or investment program  C. Spend money on some things you enjoy, but set aside money for your savings or investment program

C. Middle-of-the-road Approach  It is wise to find a happy medium, balancing both your immediate wants and your overall financial goals

The End