2. Savings & Investments HOW TO BECOME A MILLIONAIRE.

3. Savings & Investments What do you guys “invest” to earn an income? YOUR TIME! This unit we will focus on investing your money for an additional income.

4. Savings & Investments How many of you do not have enough money to save or invest? The MOST IMPORTANT MONEY/FINANCIAL SKILL TO REMEMBER… PAY YOURSELF FIRST!!! KEY TO FINANCIAL SUCCESS

5. Savings & Investments The first thing to do with your paycheck is to PAY YOURSELF. Before bills, payments, shopping, etc… If you have a lot of payments, a good start to pay yourself is 5% of your paycheck.

6. Savings and Investments Some of you may feel you still do not make enough to save. There are programs that help Bank of America’s “Keep the Change” Program.

7. Savings & Investments The big difference between Savings and Investments is TIME. SAVINGS is usually money set aside for short-term goals

8. Savings Savings accounts are usually very safe but earn a small amount of money. You should “shop” around at banks to see which bank offers the highest interest.

10. Savings The GOOD thing about savings, is you can get your money out whenever you want.

11. Investing When you INVEST, you set your money aside for future income, benefits, or profit to meet long-term goals. EX: Retiring (Long-term…30-40 years)

12. Investing When you invest, there are NO guarantees you will make money. The EARNINGS or LOSSES are much greater than compared to a Savings account.

13. Investing The higher the risk you take investing, the greater the potential for high returns

14. Key Investment Principles

15. Time: We already talked about time. Example:

17. Key Investment Principles Risk and Return Investments are definitely more risky However, with higher risk comes higher reward The reverse is also true!!!

18. Key Investment Principles Rate of Return: How fast your money grows. This is critical with investing THERE IS NO DIFFERENCE BETWEEN INTEREST RATE AND RATE OF RETURN. The higher the interest rate, the higher return you’ll have.

19. Key Investment Principles Diversification: Reduction of investment risk by spreading your invested dollars among several different investments. Other words: “Don’t put all your eggs in one basket.” Have money in savings, stocks, mutual funds, CD’s etc…

20. Key Investment Principles Diversification cont… Example You have $100 You put $50 in stock A and $50 in stock B. Stock A crashes and is now worth nothing…you lost $50 instead of the whole $100.

21. Key Investment Principles Inflation Occurs when the price of goods and services rise/increase. Usually raises 3 – 4% per year Skateboard, hamburger, purse, tennis shoes now all cost more. REMEMBER: A DOLLAR TODAY IS WORTH MORE THAN A DOLLAR TOMORROW

22. Key Investment Principles Inflation cont… Example 1971, stamp cost 8 cents Today, stamps cost 42 cents That’s a 525% increase!!! That’s an average of 13% per year increase

23. Key Investment Principles Because of inflation, you could lose money while saving it!!! Example: You want a candy bar today that costs $1 Instead you put a dollar in a savings account that has a rate of return of 2%. Next year that account has $1.02 in it. Because of inflation, that candy bar costs $1.03 now

24. Key Investment Principles Example cont… Inflation went up higher than your return!!! This is not uncommon When this happens, it’s equivalent to losing money.

25. Key Investment Principles Candy Bar Inflation of 3% Today $1 candy bar cost $1 2 nd year = $1.03 3 rd = $1.09 10 th = $1.34 20 th = $1.81 Savings Account Rate of Return of 2% Today $1 in savings is $1. 2 nd year = $1.02 3 rd = $1.04 10 th = $1.22 20 th = $1.49

26. Choices Stock Simulation!!!

27. Choices When people think of investing, they think of stocks. Many more options!!!

28. Time Value of Money You ALL have a GREATER amount of one resource RIGHT NOW than you will EVER HAVE at any point in your life. TIME!!! The YOUNGER you start, the WEALTHIER you will BE.

29. The Earlier you Start, The Earlier you can Stop. The sooner you invest for retirement, the sooner you can stop working and retire. TIME IS MONEY

31. Time Value of Money Time Value of Money- is the relationship between time, money, and rate of return (interest rate), and their effect on earnings growth.

32. Time Value of Money TIME: The more time you have to save, the more MONEY you will have at the end of the period. MONEY: The more money you have to save, the more you will have at the end. RATE OF RETURN: The higher interest rate, the more money you will have.

33. Time Value of Money A dollar TODAY is worth more than a dollar TOMORROW. For example: If you invest $1 today, in two years it may be worth $1.15 The 15 cents is called Earned Interest.

34. Time Value of Money Earned Interest- The payment you receive for allowing a financial institution or corporation to use your money.

35. Time Value of Money If you all started to put the maximum amount into an IRA, ($5,000/year) by the time you are 59 1/2 years old, you will have around…

36. Time Value of Money

37. Compounding When your money works for you, it grows in value or compounds. Compounding - (compound interest), is the idea of earning interest on interest.

38. Compounding Example: Assume you have $100 in an account earning 10% interest per year. At the end of that one year you will have $110. How much will you have at the end of the second year?

39. Compounding You will have $121 Don’t forget that your interest is making interest. In year 2 you still have your $100 working for you at 10%. But you now also have the interest you made ($10) working for you at 10%.

40. Compounding Your $100 will make your $10 every year if it’s locked in at 10% interest. However, your earned interest, since it is increasing every year, will gradually make you more money every year. 3 rd year you will have $133.10

41. COMPOUNDING PROBLEMS