The Secrets of Saving Get Ready to Take Charge of Your Finances

© 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 G1 What is Savings? Savings - portion of income not spent on current expenses Because of the unknown of the future Money should be saved to pay for unexpected events or emergencies Do you know what will happen tomorrow?

© 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 G1 Why is it important to save money? Without savings, unexpected events can become large financial burdens Helps people become financially secure If an unexpected expense occurs, money can’t 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 4 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G1 What are other reasons a person would want to save money? Buy items that are too expensive to be purchased with monthly income What item would you like to save money to purchase? VacationCar Furniture

© 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 G1

© 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 G1 How much money should be saved? Why would this amount of savings be recommended? To be considered financially secure and have enough money for emergencies Recommended AmountExample 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

© 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 G1 How can this amount of savings be reached? Recommended % 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 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G1 Where can money be saved? Which is the safest method? Piggy Bank Depository Institution Jar Coffee Can Under a Mattress Depository Institution!

© 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 G1 What is a depository institution? Depository institution - business that offers financial services to people Advantages to Saving Money at a Depository Institution What is a name of a depository institution in your community? 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 10 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G1 What is Interest? Interest - price of money Depository institution accounts may earn money from interest Interest earned- calculate 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 11 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G1 What accounts at depository institutions earn interest? Savings Account Money Market Deposit Account Certificate of Deposit Definition Characteristics Holds money not spent on current expenses Pays a higher interest rate than a savings account Pays interest on a lump sum of money 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 12 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 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 13 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G1 Factors affecting the Time Value of Money Time Save for as long as possible! Amount of Money Save as much as possible, as often as possible! Interest Rate Save at the highest interest rate possible!

© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of 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 G1 $500 saved at 3% interest Year Amount of money account is worth Initial amount saved$ $ $ $ $ $ Use the time value of money to your advantage!

© Family Economics & Financial Education –August 2010– Get Ready to Take Charge of Your Finances – 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 Year 5 Interest Earned: $33.26 Amount Savings is Worth: $ Year 10 Interest Earned: $56.46 Amount Savings is Worth: $ Year 15 Interest Earned: $79.19 Amount Savings is Worth: $ Year 20 Interest Earned: $ Amount Savings is Worth: $ Year 50 Interest Earned: $ Amount Savings is Worth: $ Time Value of Money Magic! Initial Savings: $ at 7% interest Year 1 Interest Earned: $7.00 Amount Savings is Worth:

© 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 G1 How do you choose to save money over spend money? Pay Yourself First! A Strategy Creates a habit Saving is not what is left at end of month Set aside money for saving before spending any money Save then spend! Why?

© 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 G1 To successfully practice “pay yourself first”… Set goals! Goal- End result of something a person intends to accomplish Financial Goal- Specific 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 18 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G1 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 19 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G1 What are you willing to give up to obtain the item you want to purchase? 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 20 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G1 When considering trade-offs to financial goals Examine spending Adjust spending to reach financial goals 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?

© 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 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 22 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G1 Is Saving Money a Secret? No! But it does require a person to: 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 23 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G1 In order to choose saving money over spending money… “Pay Yourself First” To successfully practice this strategy… Examine trade-offs Set financial goals Examine current spending

© 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 G1 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 25 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 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