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The Role of Savings

Learn about the advantages of saving money for emergencies, future purchases, and financial goals. Understanding savings methods, interest calculations, and investment opportunities is crucial for building a secure financial future.

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The Role of Savings

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  1. The Role of Savings Benefits of Savings Chapter 12

  2. Benefits of Savings • Savings: setting aside present income for future use • Savings can help in two ways: • 1. It allows you to accumulate money for future use

  3. Benefits of Savings • 2.Money can be put to work for you by earning interest. Even small amounts saved now will benefit you later • Savings is closely related to another financial principle

  4. Benefits of Savings • Investing: committing money for the purpose of making a profit over time. • Unlike savings it requires you to take risks with your money • However investing has the potential to earn more.

  5. Benefits of Savings • Reasons for saving: • 1. Emergencies- no matter how careful you are, emergencies do happen • 2. Recurring expenses: bills, birthdays, anything that recurs on a regular basis

  6. Benefits of Savings • 3. Future Purchases: saving for something you want but do not have the money at present. • Saving means delaying purchases, many do not wait and use credit

  7. Benefits of Savings • This can lead to increased spending for three reasons • 1. Using credit means you may incur finance charges, which increase the cost of the item

  8. Benefits of Savings • 2. You lose the income that could be earned by keeping cash in your savings account • 3. While credit makes it easy to buy, saving will give you time to decide if the purchase is right for you.

  9. Benefits of Savings • Financial Goals: can be different at different stages of your life • College, marriage, families, are just a few examples • One that also must be kept in mind is >>>>

  10. Benefits of Savings • Retirement: you are expected to live well beyond your retirement age. To live comfortably you must prepare and plan ahead • To do this you will need a plan

  11. Benefits of Savings • Savings Plan: a step by step approach for putting money aside in savings

  12. Benefits of Savings • Steps to Saving: • 1. Decide what you are saving for • 2. Set a specific goal- amount of money and time frame

  13. Benefits of Savings • 3. Break your long term goals into short term goal • Ex: $1000 in 6 months, you must save $42 a week, is that realistic? • 4. Save regularly and consistently

  14. Benefits of Savings • Savings amounts must be realistic. Watch your • Discretionary income: the amount available to spend after taxes and other obligations are paid. (rent, utilities etc)

  15. Benefits of Savings • Ideas for saving: • 1. Pay yourself first • 2. Automatic savings plan • 3. Direct deposit • 4. Payroll deduction

  16. Benefits of Savings • 5. Put your money to work for you- in other words put it into an interest bearing account • 6. Keep savings goal in mind-find ways to remind yourself to keep you motivated toward reaching your goals

  17. Benefits of Savings • Most importantly!!! • Stick to your plan and follow through with it

  18. Benefits of Savings • Accounts can differ in how interest calculations are made Two basic methods • 1. Simple interest-is interest calculated only on the money you have deposited, not on prior interest earned

  19. Benefits of Savings • 2. Compound interest- is interest calculated on both the deposits made and prior interest earned. In other words interest is paid on the interest • Most banks use this method

  20. Benefits of Savings • APY= Annual percentage yield-this figure tell the consumer the actual annual rate at which interest is earned

  21. Benefits of Savings • Rule of 72: is a quick way to evaluate an interest rate • This can be done by dividing 72 by the interest rate. ( APY when interest is compounded) • The answer is the approximate number of years to double your money

  22. Benefits of Savings • When choosing a savings plan we must look at options, safety, risk, fees etc. ALSO • Liquidity-the ease with which savings and investments can be turned into cash

  23. Benefits of Savings • Things to know: • Terms-a period of time which money must be kept on deposit • Money Market Accounts-deposits are invested by the bank Higher yields, more restrictions

  24. Benefits of Savings • Certificates of Deposits-CD • A certificate issued by bank to indicate that money has been deposited for a certain term • Will also show interest rate, amount deposited, length of term

  25. Benefits of Savings • Savings Bonds • Nontransferable debt certificates issued by the U.S. Treasury • You are loaning money to the government • Series EE can be purchased for half the face value

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