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Choosing to Save Essentials

Learn about saving, investing, assets, liquidity, wealth stages, and more to secure your financial future. Discover the impact of today's decisions on tomorrow's wealth. Understand trade-offs and opportunity cost to make informed financial choices. Maximize your returns and achieve your wish list goals by managing money wisely. Master the art of financial planning for a prosperous future!

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Choosing to Save Essentials

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  1. Choosing to Save Essentials Advanced Level

  2. 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 achievements

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

  4. Saving vs. Investing Investing Savings Portion of current income not spent on consumption Purchase of assets with the goal of increasing future income Money invested is used to pay for: Money saved is used to pay for: • Higher Education • Retirement • Emergencies • Large Purchases

  5. What is an Asset? Assets- everything an individual owns with monetary value Examples of Assets Clothing Cash Houses Electronics Savings Accounts Automobiles Furniture Make a list of your assets

  6. What is Liquidity? Liquidity- how quickly and easily an asset can be converted to cash Savings are known as liquid assets, because they are easily accessible in emergency situations Would any of your assets provide cash to fund an emergency?

  7. Why are Saving & Investing Important? Serve different purposes in an individual’s finances but are both essential Savings Investing Enhances and helps build wealth- measurement of how much a person or household owns once all debts have been paid Provides the foundation for financial security by providing funds in case of emergency

  8. The Choices You Make Today Impact Your Future! Saving and investing… Decrease the amount you owe- your liabilities Increase the amount you own- your assets Increased Wealth! Why is it important to increase wealth?

  9. 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

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

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

  12. Stage Three: Wealth Distribution • Consumption of wealth • Usually during retirement

  13. Saving vs. Investing Activity Characteristic: Builds Wealth Determine if the characteristic describes saving or investing Saving or Investing: Investing

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

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

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

  17. Where Can Money Be Saved? • A depository institution • A business that offers banking and finance services, such as savings and investment tools • When money is saved or invested at a depository institution, an individual can take advantage of the time value of money What is the name of a depository institution in your community?

  18. 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.

  19. What is Interest? Interest is the price of money. Interest rate is the percentage rate paid on the money invested or saved

  20. How Do Interest Rates Affect Time Value of Money? Interest Rate MoreMoney Every depository institution will offer different interest rates on their savings and investment tools

  21. How Does Time Affect the Time Value of Money? The longer an individual invests, the more time their investment has to increase in value

  22. How Does the Amount of Money Affect the Time Value of Money? Amount of Money Larger Return

  23. Time Value of Money Magic! Year 20 Interest Earned: $111.07 Amount Investment is Worth: $386.97 Year 15 Interest Earned: $79.19 Amount Investment is Worth: $275.90 Initial Investment: $100.00 at 7% interest Year 1 Interest Earned: $7.00 Amount Investment is Worth: 107.00 Year 10 Interest Earned: $56.46 Amount Investment is Worth: $196.72 Year 5 Interest Earned: $33.26 Amount Investment is Worth: $140.26 Year 50 Interest Earned: $845.46 Amount Investment is Worth: $2945.70

  24. Maximizing Your Return Make the time value of money work to your advantage!

  25. Wish List Refer to your wish list Do you currently have enough money to acquire all of the items on your wish list? If not, what are you willing to give up in order to acquire an item on your wish list? That is known as a trade-off!

  26. Trade-offs Trade-off - Giving up one thing for another Every decision inevitably involves a trade-off What is the value of this trade-off to you? That is known as opportunity cost!

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

  28. Spending Plans When analyzing trade-offs and opportunity costs of a financial decision, current spending and spending plans should be considered A spending plan is a document used to record both planned and actual income and expenditures over a period of time

  29. Goals • After analyzing the trade-offs and opportunity costs of a decision and evaluating current spending plans, you can then set a goal! Goal - the end result of something a person intends to acquire, achieve, do, reach, or accomplish Financial Goal - specific objective to be accomplished through financial planning Goal setting helps you think about your future self Financial goals should be SMART goals

  30. SMART Goals By analyzing trade-offs, opportunity cost, and spending plans before setting a goal, goals become more attainable and realistic

  31. 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

  32. Make Saving and Investing Automatic • To help reach financial goals, 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

  33. Summary- What is the purpose of saving and investing money? Financial security and a positive level of living Saving Wealth accumulation and a desired standard of living Investing

  34. To practice smart saving and investing habits … 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

  35. in order to save and invest 10-20 % of Net Income, follow this process… Consider the opportunity costs of those trade-offs Examine trade-offs that can be made Evaluate current spending plan Set a SMART goal (includes adjusting spending plans) Make saving and investing automatic Utilize the time value of money

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