1. Saving and Investing Making Money Work for You!

2. What is the difference? Saving – safe, accessible; usually only earns a small amount of interest; good for short-term goals Saving – safe, accessible; usually only earns a small amount of interest; good for short-term goals Investing –risky; higher rate of return; good for long-term goals Investing –risky; higher rate of return; good for long-term goals

3. Advantages of Saving See Pg. 29 of your Financial Planning Book See Pg. 29 of your Financial Planning Book

4. Time Value of Money Refers to the relationship among time, money and rate of interest Refers to the relationship among time, money and rate of interest Compounding Interest Pretend you are saving $10 at 4% interest for 3 years. Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 10 x 1.0410.40 x 1.04 10.82 x 1.04 10 x 1.0410.40 x 1.04 10.82 x 1.04 = $10.40 = $10.82 = 11.25 See Pg. 31 of your financial planning book

5. Time Value of Money The Rule of 72 The Rule of 72 See how long it takes to double your money by dividing with 72See how long it takes to double your money by dividing with 72 72 / interest rate = # of years needed 72 / # of years = % interest needed See Pg. 32 of your financial planning book

6. The Rule of Investing Lower Risk = Lower Return Higher Risk = Higher Return (see pg. 33 in your Financial Planning Book)

7. Types of Investments Money Market – a type of savings account offered by banks Money Market – a type of savings account offered by banks Limits the number of times you can withdraw moneyLimits the number of times you can withdraw money Usually require a higher minimum balanceUsually require a higher minimum balance Pays a higher rate of interest than savings accountsPays a higher rate of interest than savings accounts

8. Types of Investments Savings Bond – formal agreement where the borrower uses your money for a set period of time and you will be paid a set amount of interest in return Higher interest than savingsHigher interest than savings Can be held for a period of up to 30 yearsCan be held for a period of up to 30 years Must pay a penalty if money is removed before the end of the termMust pay a penalty if money is removed before the end of the term Often government-issuedOften government-issued

9. Types of Investments CD (Certificate of Deposit) – Bank version of a Savings Bond Can be set for a period starting as low as 3 monthsCan be set for a period starting as low as 3 months Usually pay a slightly higher rate of interest than savings bondsUsually pay a slightly higher rate of interest than savings bonds The longer the term, the higher the rate!The longer the term, the higher the rate!

10. Types of Investments Mutual Fund – an investment in a collection of stocks and/or bonds Money is spread out, so there is less risk than investing in individual stockMoney is spread out, so there is less risk than investing in individual stock Can be sold/cashed in at any timeCan be sold/cashed in at any time (see pg. 39 of your financial planning book)

11. Types of Investments Stock – owning share in a company Stock – owning share in a company One of the riskiest investments, but over time can yield the highest returnOne of the riskiest investments, but over time can yield the highest return Can be sold/cashed in at any timeCan be sold/cashed in at any time