Savings Options. I. Importance of Saving A. To buy…without paying interest.

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Presentation transcript:

Savings Options

I. Importance of Saving

A. To buy…without paying interest.

B. For emergencies: can you pay your deductible?

C. For retirement. Because Social Security’s future is uncertain, and it is not enough anyway. (average $1079/month)

D. It is not enough to just save, you must make your savings grow. Because what is constantly nibbling away at your savings?

INFLATION! And the IRS…

Your savings must grow an average of 3% yearly just to keep up with inflation.

II. Where to save. Some important considerations...

The key to monetary growth: Time

Rule #1: Start saving at a young age. Compound interest (interest computed on the sum of an original principal and its interest) and compounding dividends leads to exponential growth So do stock splits. 1>2; 2>4; 4>8, and so on.

Rule #2: Before deciding where to put your savings, decide what those savings will be used for. Consider these three things:

A. Rate of return: The % by which your principal grows over time. Includes interest rate. Does your rate of return beat inflation???

B. Ease of access: Generally, the easier and quicker the asset is to turn into usable cash (liquidity), the lower its return.

High liquidity:

B. Ease of access: Generally, the easier and quicker the asset is to turn into usable cash (liquidity), the lower its return. High liquidity: Checking account (0%)

B. Ease of access: Generally, the easier and quicker the asset is to turn into usable cash (liquidity), the lower its return. High liquidity: Checking account (0%) Low liquidity:

B. Ease of access: Generally, the easier and quicker the asset is to turn into usable cash (liquidity), the lower its return. High liquidity: Checking account (0%) Low liquidity: CD (3%)

C. Risk: Generally, riskier investments have greater possible returns (and losses).

Low risk:

C. Risk: Generally, riskier investments have greater possible returns (and losses). Low risk: Savings account (<1%)

C. Risk: Generally, riskier investments have greater possible returns (and losses). Low risk: Savings account (<1%) Higher risk:

C. Risk: Generally, riskier investments have greater possible returns (and losses). Low risk: Savings account (<1%) Higher risk: Stocks (-100% to +250%)

Famous rule #3: Money is like manure. If piled in one place, it ~stinks~. But, when you spread it out, it makes things *grow*.

Famous rule #4: PAY YOURSELF FIRST! Invest consistently! Have funds automatically withdrawn each pay period.

“Be fearful when others are greedy and be greedy when others are fearful.” -Warren Buffet, 2 nd richest human in America.