Upload
ellena98
View
640
Download
1
Embed Size (px)
DESCRIPTION
Citation preview
Financial Financial Fitness Program Fitness Program
Saving and Investing
Key Points
Importance of saving and investing
Resources to aid saving
Strategies to reduce spending and increase income
Savings tools and challenges
Key Points
Difference between saving and investing
Basic investment strategies and terms
Retirement planning and Social security
What is SavingsWhat is Savings
Setting aside money to meet known or unexpected short-term needs
An act of economizing; reduction in cost; "it was a small economy to walk to work every day"; "there was a saving of $2.00"
Characterized by thriftiness; "wealthy by inheritance but saving by constitution"- Ellen Glasgow
Savings in the USA Savings in the USA Why is it so Difficult ?Why is it so Difficult ?
#1 Reason's)The capacity to save has become difficult in recent years due to :
“Consumer Mentality”"I Want It Now" or " I Must Have It
Immediately"
“an illness that, apparently, is only cured when you spend your money on items or assets that will give short or maybe even long term happiness but will definitely not increase in value. In other words - A Depreciable Asset".
Savings in the USA Savings in the USA Why is it so Difficult ?Why is it so Difficult ?
#1 Reason's)The capacity to save has become difficult in recent years due to :
Internal vs. External Factors
Savings in the USA Savings in the USA Why is it so Difficult ?Why is it so Difficult ?
#1 Reason's)The capacity to save has become difficult in recent years due to :
Internal FactorsHigher consumer debt levels Employees not vested or not fully
utilizing 401(K) or other company retirement plans.
56% of working-age households won't be able to maintain their pre-retirement standard of living after they retire.
Savings in the USA Savings in the USA Why is it so Difficult ?Why is it so Difficult ?
#1 Reason (con’t)The capacity to save has become difficult in recent years due to :
External Factors Low savings rates due to low market interest rates in
general Living wage is higher on average than the minimum
wage. Higher interest rates on credit cards. i.e. “the credit
card trap” Costs associated with Sub Prime and Predatory Lending
loan products, as well as other fringe banking services. – Pay Day Loans– Check Cashers
Why is Saving ImportantWhy is Saving ImportantTO YOU?TO YOU?
To keep from living pay check to pay check where all the house hold funds are exhausted by meeting monthly obligations
To meet emergencies and unexpected expenses without having to incur new or additional debt
To pay for certain goals in life such as a house, car, education, retirement, lifestyle etc…
You must Save to become an Investor
Importance of SavingImportance of Saving
“The Coffee Compound”“The Coffee Compound”
$1,561.53 in 2 years
$2/ day 5% interest =
$2 a day for 2 years at 5% interest
Understanding and Calculating Understanding and Calculating InterestInterest Simple Interest
Dollar Amount x Interest Rate x Term (Years)=Amount Earned$100 x .06 x 1= $6 2 years: $12
Compound Interest(Original Amount + Earned Interest) x Interest Rate x Term (Years)= Amount Earned$100 x .06 x 1= $6$100 x .06 x 1= $62 years: $106 x .06 x 1= $6.36 + $106 = 2 years: $106 x .06 x 1= $6.36 + $106 = $112.36$112.36
Rule of 72Rule of 72
Doubles 3% interest72/3=24
6% interest72/6=12
12% interest72/12=6
Age Time for money to double21 $2,000 $2,000 $2,000
27 $4,000
33 $4,000 $8,000
39 $16,000
45 $4,000 $8,000 $32,000
51 $64,000
57 $16,000 $128,000
63 $256,000
69 $8,000 $32,000 $512,000
Types of SavingsTypes of Savings
Set-aside account for periodic and unexpected expenses
Account to reach specific goals
Tips for SaversTips for Savers
Pay yourself first
Open a savings account far away from home and work
Bank change at end of day
Bank surprises
Tips for SaversTips for Savers
Make it a habit
Start small
Hang in there
Ideas for Increasing IncomeIdeas for Increasing Income
Overtime or a second job Other family members work Better paying job Savings Negotiate with creditors Other resources
Savings ToolsSavings Tools
Savings Accounts Money Market Accounts Certificates of Deposits (CDs) Individual Development Accounts
(IDAs)
Choosing an AccountChoosing an Account
Interest rate
Fees, charges and penalties
Balance requirements
Balance calculation method
Savings BarriersSavings Barriers
Funds exhausted by meeting monthly obligations
Emergencies and unexpected expenses
Savings Versus InvestingSavings Versus Investing
Saving is for emergencies and short-term goals and accounts earn less money
Investing is for longer-term goals and plans get paid at higher rate
Financial Financial Fitness Program Fitness Program
Investing
Investing Started SimpleInvesting Started Simple
In The End You’ll Learn…In The End You’ll Learn…
Asset Building Opportunities
Long Term Planning
Future Retirement Funds
Why Bother?Why Bother?
Social Security Income
Enhance Quality Of Life
Future Medical Needs
Why BotherWhy Bother
Inflation
Estate planning
Life Expectancy
Minimize Work Schedules
Desired Outcome and TimeDesired Outcome and Time
Ability to absorb risk and speculate future needs drives investing behavior
3%?
6%? Graduated Risk
9%?
Real PossibilitiesReal Possibilities
Investing At Age 35
Earning $18,000/year
Saving 3% with 401k, 403b, etc.
Rate of return 6% (moderate risk)
Nest egg at 65: $48,214
Real PossibilitiesReal PossibilitiesInvesting At Age 45
Earning $30,000/year
Saving 5% with 401k, 403b, etc.
Rate of return 4% (safe risks)
Nest egg at 65: $46,958
How To Do It: Door Number 1How To Do It: Door Number 1
Employer Programs
Pensions
401(k)s
403(b)s
SEPs, SIMPLES
How To Do It: Door Number 2How To Do It: Door Number 2
Personal Efforts
IRA
Annuities
Certificates of Deposit
PensionsPensionsEmployer Contribution Plans
Primary indicators
Not adjusted for inflation
Eligibility (FT/Vested)
Not guaranteed
401(k)s and 403(b)s401(k)s and 403(b)s
Employer-Sponsored PlanTax-deferred
Withdrawal after age 59-1/2
Contributions may be matched
(Similar to an IDA - “free” dollars)
SEPsSEPs
Simplified Employee Pension Plan
Set up by the employer
May be a tax-deferred IRA or annuity
SIMPLESIMPLE
Savings Incentive Match Plan
Pre-tax benefits
Employer % contribution
Contributions limits
The IRA Very BasicsThe IRA Very Basics
Individual Retirement Account
Traditional IRAs:
– Annual contribution caps
– Tax-deductible or non-deductible
– Taxes are deferred
The IRA Very BasicsThe IRA Very Basics
Roth IRAs
– Tax-free withdrawals IF…
– Contributions not tax deductible
AnnuitiesAnnuities
Periodic payments from an insurance company to a policyholder
– Pretax salary reductions
– Earns tax-deferred income
Certificates of DepositCertificates of Deposit
Like a short term savings goal it can be established for longer terms
Least cumbersome paperwork
Easiest to draw funds
Lowest risk and lowest return
Websites to HyperlinkWebsites to Hyperlink Money
– http://www.money.com/ Kiplinger
– http://www.kiplinger.com/ The Motley Fool
– http://www.fool.com/ Bankrate
– http://www.bankrate.com/ Investopedia
– www.investopedia.com
Retirement PlansRetirement Plans
Social Security
Employer Savings Plans
Personal Savings Plans
Financial PlanFinancial Plan
Usually a document prepared by an insurance or investment professional
Evaluate the likelihood of your reaching your financial goals given your age, asset allocation, and tax obligation.
Plans concentrate on specific goals such funding a college education, planning for retirement, or reducing estate taxes
Financial PlanFinancial Plan
Should list your stated goalsGive a timetable to reach themHave financial projections related to your stated
goals and asset allocationProvide disability, life, and liability insurance
evaluationsMake investment recommendations related to
your goalsGive income tax management strategies
Why is a Financial Plan Why is a Financial Plan Important? Important?
Help clarify and achieve numerous financial goalsDetermine where you are spending your moneyCan be tax deductibleUnderstand the commitment necessary to meet
financial goalsHelp understand real insurance needsDetermine the most effective way to invest
resources
Choosing A Financial Choosing A Financial Advisor/Planner Advisor/Planner
How long have you been in the business? Do you specialize in any product or service? How are you compensated? Will other members of the company help prepare the
plan? How many clients do you have? What is the average net worth or portfolio of your
client base? How many of your clients have written financial
plans and can I see one?
ResourcesResources
National Association of Personal Financial Advisors
www.napfa.org
Institute of Certified Financial Planners
www.cfp-ca.org
SummarySummary
A little bit of savings adds up over time
Pay yourself first
Make savings a habit
Look for ways to trim expenses
Save and invest (in your future)