What would you do? Chapter Six -- Savings

What is the "Fiscal cliff"?

Lesson Six- Save Money, Start Now Objective: Master the basics of interest and how saving money makes money – Become familiar with different types of saving accounts and options – Discover financial tools designed to make saving easy

Why save? Specific Goals ______________ Unexpected costs ______________ Future Goals __________________ How much to save? At least 10% of your income Save a little at a time (becomes a habit) Save for emergencies ( three to six months’ living expenses should be saved)

Savings Ways to save: – First rule- pay yourself first – Examples: Come up with at least two How savings works: – I= P x R x T – Interest = Principal x Interest Rate (APR) x Time – Fixed and Variable rates – Types of interest: simple and compound

Simple Interest Principal x interest rate x time = interest earned $1,000 dollars at a rate of 5 % for one year 1000 x.05 x 1 = dollars simple interest 1000 x.002 x 1 = 2.00 dollars simple interest

Compound Interest Compounded daily = _________ Compounded monthly = _______ Compounded annually = _______ Compounded quarterly = _______ Year One : 1000 x.05 x 1 = 50 Year Two: 1050 x.05 x 1 = Year Three: x _______ x ____ “most powerful force in the universe, compounding interest”

Rule of 72 Approximately how fast your money will double over time – 72 divided by “interest rate” = number of years needed to double your money – Example: 72 / 2% = ________ years to double – Example: 72/ 8% = _________ years to double

Guided Practice Compound Interest Module One , , Rule of 72: 24, 14, 12%, 4.8%, 18, 7.2%, 12, 9%

Closure Explain the concept Pay yourself First— Complete scenario The effects of saving on a regular basis