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2.4.1.F1
Choose to Save Advanced Level
Saving money is an essen al part your financial plan. When you save you accumulate funds by inten onally
spending less than you earn. Savings is the por on of income not spent on consump on (the purchase of goods
and services).
An important reason to have savings is for emergency expenses. Without savings, paying cash for an unexpected
expense may be difficult. Emergency savings (cash set aside to cover the cost of unexpected events) creates a
sense of financial security. The lack of an emergency fund not only creates financial stress, but also drives the
consumer into debt.
Savings contributes to your net worth (wealth) and is recorded as a financial asset on your Statement of Financial
Posi on. Be sure this financial asset (your emergency fund) is in an “easily‐accessible” account (usually a savings
account) that can be accessed in a day or two without penalty. Financial assets easily converted into cash are called
liquid. Liquidity is defined as how quickly and easily you can access your assets and convert them into cash.
How much money to save
Most experts recommend having between 3‐6 months of expenses put aside in emergency savings. Let’s say your
goal is to save six months of expenses. If you normally have $2,000 in expenses each month then you should try
to build up a total of $12,000 in emergency savings. Be careful
not to confuse the funds you’ve saved for emergencies with
funds you’d like to spend on vaca ons with friends and family or
on big expenses like a new flat screen TV or newer furniture.
Emergency funds are just that; funds set aside only to be used in
an emergency!
How to save money
Saving is an important part of se ng and reaching financial goals. Your
goal may be to build your emergency savings fund or to buy a car, new
furniture or the down payment on your first home. You begin by se ng
your financial goal and working backwards to determine a realis c amount
you can save during a specific me period. Saving money for future
consump on always requires not purchasing something today. You must
ensure the trade‐offs are realis c and the opportunity cost of what you are
giving up won’t nega vely impact your well‐being.
What savings goal do you have in
place?
What are examples of emergency expenses a household may encounter?
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2.4.1.F1
How to save money con nued…
Your spending plan helps you determine how much you can save based on your income and expenses. A frequent
assessment of what you spend your money on is a good habit to develop.
Here are a few money‐saving sugges ons:
Examine current spending – Examine expenses in your Income and Expense Statement and your Spending
Plan to determine changes that can be made to decrease your spending. Start with small expenses (your daily
coffee shop drink, new clothes) and then review your larger expenditures (cable and cell phone plans and
some mes grocery bills) to see if there are opportuni es to decrease your spending.
The following are ps to decrease spending:
1. Communica on ‐ Could you cancel your cable/satellite television or
reduce the cost of your current package? Could you reduce the cost of
your cell phone package? Could you drop your home Internet and use
public Internet at places such as a library?
2. Food ‐ Could you eat at restaurants less? Could you purchase items in
bulk instead of at a vending machine or gas sta on?
3. Transporta on ‐ Could you use public transporta on instead of owning
a vehicle?
4. Housing ‐ Would you consider moving to a smaller or less expensive
home or apartment in order to reduce your mortgage/rent payment and/or u li es?
A er reviewing your monthly expenditures, if you s ll can’t reach your saving goal you might consider:
1. Increasing your income by lobbying for a raise, switching to a job that pays more or taking on a part me
job if even only for a short period of me to increase your savings.
2. DIY – You’ve seen the “do it yourselfers” on TV, so why not try a couple of personal tasks on your own.
Not only can this save you money (if you do it right the first me!) it but it can also give you a sense of
accomplishment! However, the cost to you of doing something on your own is your investment of me
(and materials) in place of the money you otherwise would spend. Make sure you are willing to give up
the me and have the proper skills needed to complete do it yourself tasks.
The following examples are Do It Yourself (DIY) ac vi es:
Food ‐ Pack your lunch and prepare food/beverages from scratch instead of purchasing ready‐to‐eat
items such as coffee and frozen meals.
Transporta on – Develop skills that allow you to take care of very basic vehicle maintenance and
repairs.
Housing ‐ Maintain the inside and outside of your home; visit your local home improvement center to
learn about home DIY projects.
It may be difficult to decrease
or remove contractual
expenses from your spending
plan. With a contractual
expense, you have signed a
contract that requires you to
pay that expense for a specific
amount of me. Make sure to
consider the consequences of
a contract before signing.
What are three ways you could start saving today?
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2.4.1.F1
Having solid savings habits helps you reach your financial goals. A successful saving
strategy for many is to “pay yourself first.” Paying yourself first means saving for
the future by pu ng money aside before paying your regular monthly bills or
using your income for discre onary purchases.
Make paying yourself first automa c. Ways to accomplish this include:
Automa c transfers ‐ Most depository ins tu ons allow you to set up
automa c transfers among accounts within their depository ins tu on or to
accounts at other ins tu ons. Once the ini al setup is complete, the money is
automa cally moved from one account to another on dates designated by
you.
Payroll Deduc on ‐ Many employers offer payroll deduc on to employees.
With this type of payroll deduc on, you designate a certain percentage or
specific amount of your paycheck to be deposited into an account of your
choice.
Many resources are out there to help you reach saving goals. Websites like h ps://secure.piggymojo.com and
h p://www.s ckk.com, help you develop goals and s ck to them with peer support. Internet‐based spending
plan programs such as h ps://www.mint.com, and programs offered by depository ins tu ons offer goal
tracking through online/mobile banking.
Increasing the value of money
Saved money can increase in value while providing for your future. Time value of money is the idea that money
available at the present me (today) is worth more than the same amount if received in the future. That’s
because if you have it today, it can grow over me. Understanding this core principle of personal finance will help
mo vate you to save early and o en. The factors that affect the size of your savings balance in the future are
me, the interest rate, and the amount you save each period.
Interest rate
Interest is the price paid for using someone else’s money. The interest rate is the percentage rate used to
calculate interest. Interest is earned (if you are the lender) or paid (if you are the borrower). When you save
money in an interest earning account you earn interest. Savings tools are products offered by depository
ins tu ons that, in most cases, allow your deposits to earn interest.
If you don’t withdraw the interest earned from an account, the interest has an opportunity to earn addi onal
interest. Earning interest on interest is known as compound interest.
Graph 1 is an illustra on of how higher interest rates and compound interest
increase the value of savings.
$1,000 Saved for 5 Years with Compounding Interest
To maximize your return:
Save at the highest
interest rate possible!
Save for as long as
possible!
Save as much as
possible, as o en as
possible!
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2.4.1.F1
Your present self impacts your
future self. By saving money
today you will have financial
security in the future
Time
Time is necessary for money to increase in value. The longer you save, the more me your money has to grow. Take
Felix and Savannah for example:
Felix
Saved for: 18 years
Contributed: $50/month
Total Contribu on: $10,800
Interest Earned: $8,856
Total Balance: $19,656
Savannah
Saved for: 4 years
Contributed: $350/month
Total Contribu on: $16,800
Interest Earned: $2,676
Total Balance: $19,426
Felix’s parents began saving $50.00 per month for
Felix’s college educa on when he was born, and
saved un l he was 18. Savannah’s parents waited
un l she was a freshman in high school and only
had 4 years to save un l she turned 18. Both
accounts earned the same interest rate (6%) and
had the same balance when the students turned 18
(about $19,500). However, Savannah’s parents had
to save significantly more ($350/month) to reach
the same savings goal, because they started later.
Amount of Money
The more you save, the larger the value of your
savings will be. The principal is the original amount
of money saved or invested. Table 3 illustrates the
difference in value for different amounts of
principal if le to grow at 3% interest for 5 years.
3% interest for 5 years
Principal Value of Savings
$100 $115.93
$1,000 $1,159.27
$10,000 $11,592.74
Saving is an essen al component of your
financial plan. Having savings reduces future
financial uncertainty and nega ve emo ons
such as stress by helping to ensure you will
be able to immediately pay for unexpected
expenses with cash. An added bonus of
saving money is the opportunity for savings
to increase in value if saved in an interest‐
earning account... Saving money will require
that trade‐offs be made. Saving money for
future consump on will always means that
you give up the purchase of something in
the present. Once a commitment to saving
money has been made, saving is best
accomplished if you automa cally pay
yourself first.
What are you willing to give up today to start saving for your
future?
Page | 13 2.4.1.L1
© Take Charge Today – August 2013 – Choose to Save Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Why save?
Choose to Save Note Taking Guide
Total Points Earned
Name
Total Points Possible
Date
Percentage
Class
Saving ‐
Results in...
Savings ‐
What type of asset is saving?
Define liquidity How much should be saved?
Identify three ways money can be saved.
By saving money
___________________
You will have financial
security in the
___________________
Page | 14 2.4.1.L1
© Take Charge Today – August 2013 – Choose to Save Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Describe pay yourself first.
How can you make the process automatic?
Why is setting a financial goal an important part of
the saving process?
Why should trade‐offs be considered when saving?
Why is time value of money important to saving?
Describe interest.
How does compounding interest work?
How does each factor affect the time value of
money?
Interest Rate
Money
Time
Page | 11 2.4.1.A1
© Take Charge Today – August 2013 – Choose to Save Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
My Wish List
My Saving Quest
Total Points Earned
Name
20 Total Points Possible
Date
Percentage
Class
Part 1: My Wish List (7 points)
What are three things on your personal wish list? Include anything of monetary value. Approximately how much does each item cost? Place a star next to the item you would like to start saving for today.
$
$
$
Page | 12 2.4.1.A1
© Take Charge Today – August 2013 – Choose to Save Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Part 2: My Current Spending (7 points)
Identify three changes you are willing to make today to your current income or spending to start saving for the future.
What is the trade‐off for each change? Place a star next to items with a realistic opportunity cost.
Part 3: Implementing My Saving Quest (6 points)
•Trade‐off: •Trade‐off: •Trade‐off:
How much can you realistically save each week for your item?
What is one strategy you will use to make the saving process automatic?
What is your financial goal?
Describe how your goal can be reached using the time value of money.
Page | 6 1.14.3.A1
© Family Economics & Financial Education – May 2012 – Time Value of Money Math Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
By educators… for educators
Time Value of Money Math Practice
Total Points Earned
Name
19 Total Points Possible
Date
Percentage
Class
Directions: Solve each of the following mathematical problems. Round each calculation to the nearest thousandth. (.5 point per blank)
Step 1: Principal X Interest Rate (in decimal form) X Time Periods = Interest Earned
Step 2: Principal + Interest Earned = Amount Investment is Worth
1. Sara deposited $600.00 into a savings account one year ago. She has been earning 1.2% in annual simple interest. Complete the following calculations to determine how much Sara’s money is now worth.
Step One __________principal x _________ interest rate x _________time period = __________ interest earned
Step Two __________ principal + __________interest earned = __________ amount investment is worth
How much is Sara’s investment worth after one year? ___________________
P (1 + r) n = A
Principal (1 + Interest Rate) Time Periods
= Amount Investment is Worth 2. Tim’s grandparents have given him $1,500.00 to invest while he is in college to begin his retirement fund. He will earn 2.3% interest, compounded annually. What will his investment be worth at the end of four years?
What is the equation? ________ Principal x (1 + ________ interest rate) ________ (time period) = Amount investment is worth
Step One 1 + ________ interest rate = ________
Step Two ________ (answer Step One) ________ time period = ________
Step Three ________ (answer Step Two) x ________ principal = ________ Amount investment is worth
What will Tim’s investment be worth at the end of four years? ________
Simple Interest
Compound Interest – Single Sum Investment
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© Take Charge Today – August 2013 – Choose to Save Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Take a Chance Tracking
Total Points Earned
Name
Total Points Possible
Date
Percentage
Class
Part 1: My Income Congratulations, its payday! You work full‐time at Indulgence Bakery earning $10.25 per hour and working 40 hours per week. You are paid monthly with direct deposit into your depository institution account. Use your paycheck stub to enter your gross income and deductions on your income and expense statement.
Employee Information Pay Date: 6/11/2013
Name Identification Number Address Pay Rate Pay Period
Your Name 00112233 Your Address $10.25 5/1 – 5/31/2013
Summary
Gross Income Total Personal Deductions Net Income
Current $1,640.00 $473.81 $1,166.19
YTD (year to date)
$8,200.00 $2,369.05 $5,830.95
Earnings
Type Rate Hours Current YTD
Regular $10.25 160 $1,640.00 $8,200.00
Deductions
Type Personal Deduction Employer Contribution
Federal income tax $181.35 0
State income tax $29.00 0
Social Security $101.68 $101.68
Medicare $23.78 $23.78
Retirement plan $50.00 $50.00
Health insurance $88.00 $325.00
Workers’ compensation 0 $11.80
Unemployment insurance 0 $4.26
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© Take Charge Today – August 2013 – Choose to Save Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Part 2: My Spending 1. You used an application on your phone to create an electronic list of all expenses. Identify the category
each expense would be in the income and expense statement. 2. Use this information to update your actual spending column on your income and expense statement. 3. Once you have entered all of the income and expenses, calculate the expense total and net gain or loss. 4. Calculate the difference for each category in the difference column on your income and expense
statement.
Company Amount Income and Expense Statement Category
Where I Live $325.00
Town and County Grocer $25.30
Keep the Lights On Utility Company $48.20
Quick Stop Fuel $48.90
Edwards Pizzeria $13.50
Pro Sporting Events $52.00
Love to Drive Auto Sales $160.00
Keeping Your Car Insured $42.00
JJ’s Trendy Clothing $48.00
Town and Country Grocer $84.60
Talk all Night Communications $70.00
Savings Account $40.00
Quick Stop Fuel $52.70
The All‐Inclusive Convenience Store $17.38
Town and County Grocer $32.00
The Mongolian BBQ $23.50
Hearts and Homes Charity Donation $50.00
Reflect on your May Income and Expense Statement: 5. How much, if any, money did you have left at the end? What would you use that money for?
6. You have realized that you want to start saving an additional $45 each month for a new tablet. What are at least two ways you would adjust your current spending to free up the $45? What are the tradeoffs to each spending adjustment?
Page | 17 2.4.1.A2
© Take Charge Today – August 2013 – Choose to Save Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Income and Expense Statement for: You!
Time Period: May 1‐31st
Spending Plan Actual Amount
Spent Difference
Income
Earned Income
Wages or salary before deductions $1640.00
Commissions/tips/bonuses
Unearned Income
Money from savings and investments to help pay expenses during this time period
Scholarships from non‐government sources
Total Income $1640.00
Expenses
Deductions Often Taken from Paychecks
Federal and State Income tax $210.35
Social Security $101.68
Medicare $23.78
Saving and Investing (Pay Yourself First)
Contribution to emergency savings $40.00
Contribution to savings for a financial goal $0.00
Retirement $50.00
Insurance Premiums
Health insurance $88.00
Automobile insurance $42.00
Life insurance $0.00
Housing Costs
Housing payment (rent or mortgage) $325.00
Utilities (gas, electricity, water, garbage) $50.00
Transportation Costs
Car payment $160.00
Fuel (gasoline/diesel) $110.00
Automobile repairs and maintenance $30.00
Food Costs
Food at the grocery store $135.00
Meals at restaurants $54.19
Other: $0.00
Communication and Computers
Cell phone $70.00
Medical Costs Not Covered by Insurance
Medical care and medications $0.00
Clothing and Personal Care
Clothing $50.00
Personal care (shampoo, haircuts, cosmetics, laundry, etc.) $25.00
Educational Expenses
Tuition for private school or higher education $0.00
Entertainment
Movies, books, toys, and other entertainment $75.00
Credit Costs
Credit card payment $0.00
Giving
Donations $0.00
Total Expenses $1640.00
Net Gain or Net Loss (Income less Expenses) $0