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Choose to Save Advanced Level
Choose to Save
Advanced Level
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 2 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
What is Saving?
Saving – accumulaGon of excess funds by intenGonally spending less than you
earn
Savings – porGon of income not spent on consump4on (purchase of goods and
services)
Results in
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 3 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
Why Save?
Emergency savings
• Cash set aside to cover the cost of unexpected events
Short-‐term goals & expenses
• Pay for items that aren’t part of a typical spending plan
Financial security
• Lower stress • Lower negaGve emoGons
Your present self impacts your future self By saving money today you will have financial security in the future
What are examples of emergency expenses?
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 4 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
Saving Reduces Financial Risk and Uncertainty
Very liquid (can quickly and easily be converted into cash)
Savings is a monetary asset Contributes to net worth
What monetary assets do you have for emergencies?
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 5 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
How Much Money Should Be Saved?
At least six months worth of expenses in emergency savings
$2,000 monthly expenses
6 months $12,000
Depends on…
Income Job security
Insurance coverage Dependents
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
Saving on an Income & Expense Statement
Saving is a form of unearned income when used to pay for an expense
Saving is an expense when money is being saved
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
My Saving Quest Part 1: My Wish List
My Wish List
$
$ $
Brainstorm a personal wish list for yourself
Approximately how much does each item cost?
Place a star «next to the item you would like to start saving for today
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
IdenGfying Money to Save
Examine current spending
What changes can you make to reduce current spending?
Ask yourself if items are a need or a want
Consider small, oien
daily, expenses
Consider large, oien monthly, expenses
What are ways to reduce spending?
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 9 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
IdenGfying Money to Save
Increase Income
Decrease Expenses
Do It Yourself
Instead of paying someone
Trade-‐off
InvesGng Gme and skills
What can you do yourself to save money?
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 10 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
Create a Savings Plan
Set a goal!
What are you saving
for?
How much needs to be saved?
How can the goal
be achieved?
Is the goal realisGc?
When will the goal
be reached?
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 11 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
Make Sure Your Goal is RealisGc!
Ensure the trade-‐offs are realisGc and
opportunity cost of what is given up to save is not
too high!
Saving money for future
Giving up the purchase of something in the present
Why can saving be difficult?
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 12 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
My Saving Quest Part 2: My Current Spending
• Trade-‐off • Trade-‐off • Trade-‐off
IdenGfy three changes you will make to your current income or spending today to start saving for the future
What is the trade-‐off for each change?
Place a star « next to items with a realisGc opportunity cost
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 13 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
Pay Yourself First
Save a predetermined amount of money
Do so before using money for spending
Do so each Gme you are
paid
Make it automaGc!
Your present self impacts you future self!
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 14 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
Saved Money Provides For Your Future Self….
Time Value of Money -‐ money available at the present 4me (today) is worth more than the
same amount if received in the future Interest
Rate
Money
Time
… and can increase in value!
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 15 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
What is Interest?
Interest – the price of money
Interest rate – percentage rate used to calculate interest
Interest may be earned or
paid
Depository insGtuGons offer secure accounts to save money
When you don’t withdraw interest earned from an account the interest earns addiGonal interest
Compounding interest – earning
interest on interest
Interest -‐ the price of money
Interest rate -‐ percentage rate used to calculate interest
Compounding interest – earning interest on interest
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 16 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
How Do Interest Rates Affect The Time Value of Money?
Interest Rate
More Money Earned
$1,051.01 $1,159.27 $1,276.28
1% 3% 5%
$1,000 Saved for 5 Years with Compounding Interest
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 17 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
Time More Money
Earned
How Does Time Affect the Time Value of Money?
Felix and his parents Saved for: 18 years • Started when he was born Contributed: $50/month Total ContribuGon: $10,800
Savannah and her parents Saved for: 4 years • Started when she was a freshman Contributed: $350/month Total ContribuGon: $16,800
Both earned the same interest rate Both currently have the same balance (about $19,500) Savannah’s parents contributed significantly more
College Savings Fund
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 18 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
How Does Money Affect the Time Value of Money?
Principal -‐ original amount of money saved
or invested
Money More Money
Earned
3% interest for 5 years
Principal Value of Savings
$100 $115.93
$1,000 $1,159.27
$10,000 $11,592.74
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 19 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
$0.00 $1,000.00 $2,000.00 $3,000.00
0
1
5
10
15
20
25
30
35
40
45
50
Dollar Value
Years
Year 5 Interest Earned: $33.26 Amount Investment is Worth: $140.26
Year 10 Interest Earned: $56.46 Amount Investment is Worth: $196.72
Year 15 Interest Earned: $79.19 Amount Investment is Worth: $275.90
Year 20 Interest Earned: $111.07 Amount Investment is Worth: $386.97
Year 50 Interest Earned: $845.46 Amount Investment is Worth: $2945.70
Time Value of Money Magic!
Ini4al Investment (Principal): $100.00 at 7% compounding interest
Year 1 Interest Earned: $7.00 Amount Investment is Worth: 107.00
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 20 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
Interest Rate
Money
Time
Maximize Your Return! Save for as long as possible!
Save as much as possible, as oien
as possible!
Save at the highest interest rate possible!
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 21 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
My Saving Quest Part 3: ImplemenGng My Saving Quest
Write a goal
Specific Measurable Aqainable RealisGc Time-‐bound
How will you make the saving process automaGc?
How much can you realisGcally save each week?
How can your goal be reached using the Gme value of money?
2.4.1.G1
© Take Charge Today – August 2013– Choose to Save– Slide 22 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsGtute at the University of Arizona
Savings is an EssenGal Component of a Financial Plan
Reduces future financial
uncertainty
Reduces negaGve emoGons
Requires trade-‐offs be
made
Best accomplished
when automaGc
Opportunity for savings to increase in
value
