LEARN ABOUT THE PROCESSES OF SAVING AND INVESTING YOUR MONEY AND SOUND FINANCIAL PLANING Savings and Investment Planning

The Basics A personal savings and investing strategy is a crucial element in any financial plan. Savings Is the storage of money for future use. How much, where, and what you save? Encouraged to save 10% of your income each month. Investments Using your savings to give you the opportunity to earn more. Investments include: Savings, Securities, Real Estate, Collectables, Commodities

Investment Goals Determine Investment Goals - Income - Growth Current Income Income for current living expenses Long Term Growth Financial security for the future.

The Growth of Savings Let your money work for you! Interest Money you receive for letting others use your money. Ex.) Save $50/month and earn 6% interest every 3 months. $150 ($50 x 3 months) x.06 = $9 The interest is not added to the account but giving directly to you. This becomes INCOME!

The Growth of Savings Compound Interest Earning interest on previously earned interest will allow for a faster growth. Example: Saved $1000 and it earns 10% interest annually. First Year: 1000 x.10 x 1 = $100 Second Year: 1100 ( ) x.10 x 1 = $110 Third Year: 1210 ( ) x.10 x 1 = $121 *Interest can compound daily, monthly, quarterly, semiannually, or annually

Interest Problems 1.) You save $175 a month for an entire year. You earn 4.5% simple interest each quarter. How much money will you receive at the end of the year? ($175 x 12) x.045=$ ) You save $75 dollars a month for an entire year. You will be receiving 6% interest rate on your investment. However, the interest will be compounding yearly. How much money will earn by the end of the 3 rd year? = = = = $172.23

Savings and Investment Options Savings Plans Savings Accounts Low or minimum balance, can save or withdraw money when its kept safe. Earns very little interest. Certificate of Deposit (CD) Deposit a specific amount of money for a certain time period. Typically more interest than a Savings Account ($1000 for 1 year) Money Market Account Requires a larger minimum balance, earns money based on a variable interest rate. Typically higher than savings but less than a CD.

The Growth of Savings Securities Stock Investments The purchase allow you to become part owners of a company Capital Gain – Selling the stock for more than you purchased. Capital Loss – Selling the stock for less than you purchased. Bond Investments You lend money for use by businesses and governments Mutual Fund People can buy shares in a fund that is made up of a variety of securities This fund is then run by an investment company.

The Growth of Savings Alternative Investments Real Estate Includes the purchase of a home, property to use as rental income, and buying property in hopes of the increase in value. Commodities These include: Grain, livestock, precious metals, currency, and financial instruments. Collectables Collecting rare items in hopes of an increase in value

Evaluating Savings and Investments 4 Key Savings and Investment Factors Safety Return Liquidity Taxes

Evaluating Savings and Investments Safety & Risk The assurance that the money you have invested is returned to you. *FDIC *The 3 C’s *Multiple or One Investment Many investments can be risky and investment might not get returned.

Evaluating Savings and Investments Potential Return A good investment strategy should earn a reasonable return. Yield – The percentage of money earned on your savings for the period of a year. (Also called rate of return or annual yield) The highest yields usually associated with the greater risks, and the lowest yields are usually associated with a lower risk.

Investment Pyramid

Evaluating Savings and Investments Liquidity Investments that can quickly be turned into cash without losing value. Savings and Checking Accounts - Liquid Land or a Home – Not Liquid Your choice of the liquidity of your Investments will depend on your financial needs.

Evaluating Savings and Investments Taxes Earnings from your savings and investments are typically taxed. Some investments are actually tax free. Tax Exempt – Investments that do not have to pay taxes on its income.