The Secrets of Saving

The Secrets of Saving

Get Ready to Take Charge of Your Finances

© Family Economics & Financial Education –December 2010– Get Ready to Take Charge of Your Finances – The Secrets of Saving – Slide 2

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2.14.1.G1

What is Savings?Savings - portion of income

not spent on current expenses

Because of the unknown of the future

Money should be saved to pay for unexpected events or emergencies

Do you know what will happen

tomorrow?



2.14.1.G1Why is it important to save

money?

Without savings,

unexpected events can

become large financial burdens

Helps people become

financially secure

If an unexpected expense occurs, money can’t be found

in a scavenger hunt!



2.14.1.G1

What are other reasons a person would want to save money?

Buy items that are too expensive to be purchased with

monthly income

What item would you like to save money to

purchase?

Vacation Car Furniture



2.14.1.G1



2.14.1.G1How much money should be

saved?

Why would this amount of savings be

recommended?

To be considered financially secure and have enough money for

emergenciesRecommended

AmountExample

At least six months worth of expenses

• A household that has $2,000 per month of expenses

• Should have at least $12,000 in savings

• $2,000 x 6 months



2.14.1.G1How can this amount of

savings be reached?Recommended-

10-20% of net income saved until appropriate amount of

savings is reached

Net income – (take home pay)

Income after taxes have been taken out

of a paycheck



2.14.1.G1

Where can money be saved?

Which is the safest method?

Piggy Bank

Depository

Institution

Jar

Coffee

CanUnder

a Mattre

ssDepository Institution!



2.14.1.G1What is a depository

institution?Depository institution -

business that offers financial services to people

Advantages to Saving Money at a Depository Institution

What is a name of a depository institution in your community?

Money is insured from

loss

Offer accounts that earn interest



2.14.1.G1

What is Interest?

Interest - price of money

Depository institution

accounts may earn money from interest

Interest earned- calculate a

percent of total amount of money in account

This percent is the interest

rate



2.14.1.G1What accounts at depository

institutions earn interest?

Savings Account

Money Market Deposit Account

Certificate of Deposit

DefinitionCharacteristics

Holds money not spent on current expenses

Pays a higher interest rate than a savings account

Pays interest on a lump sum of money

•Money stored until needed•Interest earning

•Minimum deposit often required•Number of monthly withdrawals often limited

•Specific time requirements•When time period is complete, money and interest earned can be withdrawn•Higher interest rates for longer time periods



2.14.1.G1

Time Value of MoneyValue of money saved in these

accounts increases!

Time value of money- money paid in future is not equal to money paid today



2.14.1.G1Factors affecting the Time

Value of Money

Time

• Save for as long as possible!

Amount of

Money• Save as

much as possible, as often as possible!

InterestRate

• Save at the highest interest rate possible!



2.14.1.G1

$500 saved at 3% interest

YearAmount of

money account is worth

Initial amount saved

$500.00

1 $515.002 $530.453 $546.364 $562.755 $579.64Use the time value of

money to your advantage!

© Family Economics & Financial Education –August 2010– Get Ready to Take Charge of Your Finances – Saving– Slide 15


0

1

5

10

15

20

25

30

35

40

45

50

$0.00 $1,000.00 $2,000.00 $3,000.00

Dollar Value

Year

s

Year 5Interest Earned: $33.26Amount Savings is Worth: $140.26





Time Value of Money Magic!

Initial Savings: $100.00 at 7% interest

Year 1Interest Earned: $7.00Amount Savings is Worth: 107.00



2.14.1.G1How do you choose to save

money over spend money?Pay Yourself First!A

Strategy

• Creates a habit• Saving is not what

is left at end of month

• Set aside money for saving before spending any money

• Save then spend!

Why?



2.14.1.G1To successfully practice

“pay yourself first”…Set goals!

Goal-End result of something a

person intends to accomplishFinancial Goal-

Specific objectives to be accomplished through

financial planning



2.14.1.G1Why is it important to set

financial goals?Helps identify and focus on items

that are most important

Make decisions that help obtain what is most

important

Such as choosing to save over spend!



2.14.1.G1What are you willing to give

up to obtain the item you want to purchase?

This is a trade-off!Trade-off - giving up one thing for anotherEvery decision you make involves a trade-

off!

What is a trade-off to saving money for the

future?Being more financially secure in the future by saving money is a trade-off to

spending money in the present



2.14.1.G1

When considering trade-offs to financial goals

Examine spending

Adjust spending to reach financial goals

You identified trade-offs that you would make to

obtain the item you want to purchase. Do any of those

trade-offs affect your spending?



2.14.1.G1Why is it important to examine

trade-offs and spending when setting financial goals?

Knowing what is

given up to receive benefits

from goals

Makes goals

easier to accompl

ish!



2.14.1.G1Is Saving Money

a Secret?

No! But it does require a person to:

Choose saving money for the

future over spending money in

the present



2.14.1.G1In order to choose saving money

over spending money…“Pay Yourself First”

To successfully practice this strategy…

Examine trade-offs

Set financial goals

Examine current spending



2.14.1.G1What are the “secrets” to

saving money?

• Because of the unknown of the future, save money to pay for unexpected events or emergencies

• To be considered financially secure, save at least six months worth of expenses

• To reach this amount, save 10-20% of net income

• Money saved at a depository institution is protected against loss and can earn interest



2.14.1.G1What are the “secrets” to

saving money?• Take advantage of the time value of

money• Save as much as possible, for as

long as possible, at the highest interest rate possible!

• Saving money is accomplished by practicing “pay yourself first” and setting goals

• Savings goals become more attainable when trade-offs and spending plans are examined

Documents

The Secrets of Saving