1. Chapter 14 – Savings & Investing
Mr. Singh

2. Saving vs Investing Saving – The money you put aside for future use
When you deposit money in a savings account it collects interest (Ex. 2%)
Investing – using your savings to earn extra income.
Advantage – Investments yield a higher rate of return and can grow or exceed the rate of inflation
Disadvantage – Very risky and not guaranteed

3. Saving vs Investing You may want to develop a savings plan Why save?
Putting money aside to reach your financial goal
Why save?
May have an emergency (Sickness therefor can’t work, accident)
Many financial experts say you should have 3-6 months salary in case you lose your job
Some people have short and long term goals Maybe they want to buy a car (long term) ot a TV (short term)

4. Saving vs Investing
Some people just want a sense of security and satisfaction
Maybe they want extra income for retirement
People who are free from financial worries tend to be happier

5. Selecting a savings plan
You want to select a plan that has the best benefits letting you earn interest while keeping your money safe
How does the account work?
When you deposit money, you’re lending the institution your money so they can lend it to other customers
The financial institutions pays you interest – money you receive over time for letting others borrow your money

6. Selecting a savings plan
Interest – is a percentage of the original investment : this is called rate of return or yield
Example: Suppose you deposit $1000. If the interest on the account is 5% (rate of return of 5% a year), how much interest would you earn by the end of the year?
Answer: $50 ($1000 x 0.05 = $50)
5%  rate of return or yield

7. Earnings and Yield
In the example we just did, interest was calculated yearly
Sometimes interest can be calculated daily, weekly or monthly.
The more often interest is paid, the greater the return
Simple Interest – calculated only on the principal (the amount you deposited)
Compound Interest – calculated on the principal plus any interest you earned

8. Calculating Simple Interest
Eg. $1000 at 5% simple interest earns $50 every year
+$50 in the second year (Total: $1100)
+$50 in the third year (Total: $1150)
+$50 in the fourth year (Total: $1200)
+etc.

9. Calculating Compound Interest
E.g. $1000 at 5% compound interest earns $50 in the first year
+$52.50 in the second year (total $ )
+$55.13 in the third year (total $ )
+$57.88 in the fourth year (total $ )