1. Choosing to Save

2. Brainstorm a personal wish list for yourself now and in the future.
My Wish List
Brainstorm a personal wish list for yourself now and in the future.
My Wish List
Your wish list can include anything of monetary value as well as personal goals.

3. “Today’s self has an impact on future self”
What does this statement mean to you?
“Today’s self has an impact on future self”

4. Saving vs. Investing Savings Investing
Portion of current income not spent on consumption
Purchase of assets with the goal of increasing future income

5. Savings vs. Investing Money saved is used to pay for:
Money invested is used to pay for:
Emergencies
Large Purchases
Higher Education
Retirement

6. Liquidity Cash Clothing Houses Electronics Savings Accounts
Assets: Everything an individual owns with monetary value.
Liquidity: How quickly and easily an asset can be converted to cash.
Examples of Assets
Cash
Clothing
Houses
Electronics
Savings Accounts
Automobiles
Furniture
Make a list of your assets.

7. In most cases, investments are not as liquid as savings.
Liquid Assets
In most cases, investments are not as liquid as savings.
More Liquid
Savings Tools
Less Liquid
Investments
Savings are known as liquid assets, because they are easily accessible in emergency situations.
Of your assets,
which are the most liquid?

8. Why are Saving & Investing Important?
Savings
Investing
Provides the foundation for financial security
Enhances and helps build wealth

9. Wealth
Wealth is a measurement of how much a person or household owns once all debts have been paid

10. Level of Living & Standard of Living
Savings and investing help pay for a level of living in the present and reach a standard of living in the future
Level of Living
Standard of Living
A higher level of living that an individual or household sets to reach, through income increases and wealth accumulation
The amount of money needed to pay for the necessities and comforts currently enjoyed
PRESENT
FUTURE

11. How is Wealth Measured? Assets Liabilities Net Worth
Net worth statement - Describes an individual or family’s overall financial condition on a specified date
Assets
Liabilities
Net Worth
The components include:
Assets – Everything a person owns with monetary value
Liabilities – Debts (what is owed to others)
Net Worth – the amount of money left when liabilities are subtracted from assets (indicates wealth)

12. The Choices You Make Today Impact Your Future!
Saving and investing…
Increase Assets
Decrease
Liabilities
Changed the font the old one (rage italic) was too hard to read
Increased Wealth!

13. Financial Life Cycle
Stage 3: Wealth Distribution
Stage 2: Wealth Accumulation
Stage 1: Wealth Protection
There is a typical financial life cycle pattern that applies to most people

14. Stage One: Wealth Protection
Characteristics
Recommended Amount
Includes saving
Focuses on building financial security
10-20% of net income
At least 6 months of expenses saved in liquid assets

15. Stage Two: Wealth Accumulation
Characteristics
Recommended Amount
Includes investing
Focuses on wealth accumulation
Stage one (saving) should be a prerequisite to stage 2 (investing)
10-20% of net income

16. Stage Three: Wealth Distribution
Characteristics
Consumption of wealth
Usually during retirement

17. Financial Life Cycle Varies for every individual:
Stage 3: Wealth Distribution
Stage 2: Wealth Accumulation
Stage 1: Wealth Protection
Varies for every individual:
amount of time it takes to move through the financial life cycle
amount of money needed in liquid assets

18. Financial Life Cycle
Stage 3: Wealth Distribution
Stage 2: Wealth Accumulation
Stage 1: Wealth Protection
Identify someone you know that is in each of the three financial life cycle stages.

19. Saving vs. Investing Activity
Directions:
A characteristic of saving or investing will be identified
Move to the side of the classroom you believe to be correct
Discuss the answer

20. Saving vs. Investing Activity
Characteristic:
Builds Wealth
Saving or Investing:
Investing

21. Saving vs. Investing Activity
Characteristic:
More Liquid
Saving or Investing:
Saving

22. Saving vs. Investing Activity
Characteristic:
Used to pay for emergencies
Saving or Investing:
Saving

23. Saving vs. Investing Activity
Characteristic:
Stage 2 of the
Financial Life cycle
Saving or Investing:
Investing

24. Saving vs. Investing Activity
Characteristic:
Provides the Foundation for Financial Security
Saving or Investing:
Saving

25. True or False?
Identify if each statement is true or false… □
If Janie makes a one time investment of $500 at age 20 in a tool that earns the historic 12% average, by age 60 the $500 will become $46,525.
If Samuel invests $3,000 annually from ages (a total of $30,000 invested) in a tool earning 10% interest, he will have $1.2 million dollars by age 65.
They are both true. Now we are going to learn how!

26. Three factors affect how an investment will grow.
Time Value of Money
Money paid out or received in the future is not equivalent to money paid out or received today
Three factors affect how an investment will grow.
Interest Rate
Money
Time

27. Interest is the price of money.
Interest Rate
Interest is the price of money.
Interest rate is the percentage rate paid on the money invested or saved
Are you earning interest on any money?

28. How Do Interest Rates Affect Time Value of Money?
More Money
Interest Rate
$1,000 invested for 5 years
Interest Rate
Amount Investment is Worth 1%
$1,051.01 3%
$1,159.27 5%
$1,276.28 7%
$1,402.55 9%
$1,538.62

29. Return is the profit or income generated by savings and investing.
Definitions
Return is the profit or income generated by savings and investing.
Unearned income is income derived from sources other than employment, such as interest.

30. Simple Interest vs. Compounding Interest
Interest earned on the principal investment
Earning interest on interest
Principal is the original amount of money invested or saved

31. Simple Interest Equation: Step 1
(Principle) r
(Interest Rate) t
(Time Period) I
(Interest Earned)
$1,000
.07 5
$350
$1,000 invested at 7% interest rate for 5 years

32. Simple Interest Equation: Step 2
(Principal) I
(Interest Earned) A
(Amount Investment is Worth)
$1,000 invested at 7% interest rate for 5 years
$1,000
$350
$1,350

33. Compounding Interest Equations
There are two equations for compounding interest
Single sum of money
Money invested only once at the beginning of an investment
Equal number of investments spread over time
Equal amounts of money is invested multiple times (once a month, once a year, etc.)

34. Compounding Interest Equation – Single Sum
P (1 + i)n = A
Amount Investment is Worth
Principal (1 + Interest Rate)Time Periods =
$1,000 invested at 7% interest rate compounded yearly for 5 years
$1,000 (1+ .07)5 = $

35. Compounding Interest Equation- Equal Number of Investments
PMT x
(1+i)n-1 = A i
Payment x
(1+Interest Rate)Time Period-1 =
Amount Investment is Worth
Interest Rate
$1,000 invested every year at 7% annual interest rate for 5 years
$1,000 x
(1+.07)5-1 =
$5,750.74
.07

36. Compounding vs. Simple interest
Compounding Interest
for a Single Sum = $1,402.55
Why?
By reinvesting the interest earned, the interest payment keeps growing as interest is compounded on interest

37. Single Sum vs. Investments Over Time
Compounding Interest
for a Single Sum = $
Compounding Interest for Investments Over Time = $
To make the most of your money, utilize compounding interest and continue to invest!

38. Amount Investment is Worth
Compounding Interest
The number of times interest is compounded has an effect on return
Interest compounding frequently will yield higher returns
$1,000 invested at 7% for 5 years
Compounding Method
Amount Investment is Worth
Daily
$1,419.02
Monthly
$1,417.63
Quartely
$1,414.78
Semi-Annually
$1,410.60
Annually
$1,402.55

39. Time
Interest Rate
Money
Time
The longer an individual invests, the more time their investment has to compound interest and increase in value.

40. A Little Goes a Long Way
Sally Saver puts away $3,000 per year for 10 years, at age 22. She earns 10% on her investment.
Sally invests a total of $30,000 and has earned $1,205,063 by the age of 65
Ed Uninformed waits until he is 28 and contributes $3,000 at 10% for 37 years
Ed invests a total of $111,000 and accumulates $1,079,856 by the age of 65

41. Amount of Money
Interest Rate
Money
Time
The larger the amount of money invested, the larger the return on investment will be

42. Amount of Money Amount of Money Larger Return
7% interest compounded annually for 5 years
Amount of Principal Investment
Return on Investment
$100.00
$40.26
$1,000.00
$402.55
$10,000.00
$4,025.52

43. Maximizing Your Return
Time:
Invest for as long as possible!
Amount of Money:
Invest as much as possible, as often as possible!
Interest:
Invest at the highest interest rate possible!
Use compounding interest that compounds as frequently (annually, semi-annually, quarterly, monthly, daily) as possible!

44. Smart Investing OR Which would you choose?
An investment earning compounding interest
An investment earning simple interest OR

45. Smart Investing OR Which would you choose?
An investment earning an interest rate of 2%
An investment earning an interest rate of 2.1% OR

46. Smart Investing OR Which would you choose?
An investment with an interest rate compounded monthly
An investment with an interest rate compounded yearly OR

47. Set Goals! Wish List Refer to your wish list.
How will you receive these items?
Set Goals!
Goal setting helps you think about your future self.

48. Goals Short-Term Goal - Goal - Long-Term Goal - Financial Goal -
The end result of something a person intends to acquire, achieve, do, reach, or accomplish
Short-Term Goal -
Can be achieved in less than one year
Long-Term Goal -
Can be achieved in more than one year
Financial Goal -
Specific objective to be accomplished through financial planning

49. SMART Goals Specific Measurable Attainable Realistic Time Bound
Financial goals should be SMART goals
State exactly what is to be done with the money involved
Specific
Write the exact dollar amount the goal is for
Measurable
Determine how it can be reached, which is often determined by an individual’s budget
Attainable
Do not set goal for something unattainable or unrealistic
Realistic
Specifically state when the goal needs to be reached
Time Bound

50. Setting SMART Goals
In order to set SMART goals the following must be considered:
Trade-offs
Opportunity Cost
Spending Plans

51. Trade-off - Giving up one thing for another
Trade-offs
Trade-off - Giving up one thing for another
Every decision inevitably involves a trade-off
What is a trade-off to earning more money in the future by saving and investing?
Spending money in the present

52. Your Trade-offs
What trade-offs will you have to make in order to receive any of the items on your wish list?

53. Opportunity Cost
Opportunity cost of a decision is the value of the next best alternative that must be forgone.
Allows you to analyze the consequences of choices to decide which trade-offs to make

54. Opportunity Cost
In regards to money, the opportunity cost is the best alternative of what one could have done instead of choosing to spend, save or invest.
What is the opportunity cost of
saving and investing money?
The value of spending money in the present

55. Your Opportunity Costs
What are the opportunity costs
of your trade-offs?

56. Trade-offs & Opportunity Costs
By analyzing trade-offs and the opportunity cost of those trade-offs, goals become more attainable and realistic

57. Spending Plans
In order to reach goals, current spending plans may need to be evaluated and adjusted
A spending plan is a document used to record both planned and actual income and expenditures over a period of time

58. Adjusting a Spending Plan
Increase income or decrease expenses to save or invest more
May require trade-offs
obtaining another job
moving
acquiring a roommate
selling a car
giving up a cell phone or Internet

59. 1. Examine Flexible Expenses 2. Examine Fixed Expenses
Adjusting Expenses:
1. Examine Flexible Expenses
2. Examine Fixed Expenses
Eliminate or decrease flexible expenses
Fixed expenses are more difficult to eliminate because many are contractual
Examples-
Entertainment, Gas, or Food
Examples-
Rent, Cell Phones, or Internet

60. Adjusting a Spending Plan
The amount of money that will become available by adjusting a spending plan varies
Depends on how many trade-offs a person is willing to make
Reaching goals may take a long time

61. Your Spending Plan: Income
Income can come from many sources:
Jobs
Allowance
Family members
Gifts
Scholarships
What are your sources of income?

62. Your Spending Plan: Expenses
Everyone has expenses:
Housing
Food
Clothing
Automobile (gas, repairs)
Cell Phone
Entertainment
Brainstorm a list of your expenses.

63. Your Spending Plan
Refer to your list of trade-offs and opportunity costs for the items on your wish list.
Can you adjust your spending plan to receive any of the items on your wish list?

64. Write a SMART goal for one of the items on your wish list.
Set SMART Goals
Now that trade-offs, opportunity costs, and spending plans have been considered:
Write a SMART goal for one of the items on your wish list.
My Wish List

65. Make Saving and Investing Automatic
Saving and investing should be considered a fixed expense that is automatic
Pay yourself first is a saving strategy that means to set aside a predetermined portion of money for saving before any money is used for spending

66. How can savings and investing
become automatic?
Automatic Transfers
&
Payroll Deduction

67. Automatic Transfers
Most depository institutions allow automatic transfers between accounts
Depository institution- a business that offers banking and finance services, such as savings and investing tools
A designated amount of money will be automatically moved into a saving or investing tool every month

68. Payroll Deduction Most employers offer payroll deduction to employees
Employees can designate an amount of money from their paycheck be deposited into an account of their choice

69. Financial security and a positive level of living
Summary
Financial security and a positive level of living
Saving
Wealth accumulation
and a desired
standard of living
Investing

70. Summary
To practice smart savings and investing habits and reach a desired standard of living…

71. Summary
Save 10-20% of net income in liquid assets until at least 6 months of expenses are reached
Continue to invest 10-20% of income
to increase wealth
Utilize the time value of money
to your greatest advantage

72. Summary Set goals! Think about the trade-offs of your
goals and the opportunity costs
of those trade-offs

73. Summary
Evaluate and adjust current spending in order to reach those goals
Make saving and investing automatic to make reaching goals easier