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UNIT 5: Investing Part 2: Savings Plan

UNIT 5: Investing Part 2: Savings Plan. Dollars & Sense. Why Have a Savings Plan?. Savings Plan : putting money aside in a systematic way to help reach a financial goal. Savings plans are used to buy the goods and services we need and want. Also used for future expenses and emergencies.

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UNIT 5: Investing Part 2: Savings Plan

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  1. UNIT 5: InvestingPart 2: Savings Plan Dollars & Sense

  2. Why Have a Savings Plan? • Savings Plan: putting money aside in a systematic way to help reach a financial goal. • Savings plans are used to buy the goods and services we need and want. • Also used for future expenses and emergencies.

  3. Using Savings for Investing • Investing: using your savings to earn more money. • In order to invest your money, you must have money set aside in order to do so. • CAUTION: Investments are not guaranteed to make $$$$$ (NOT FDIC or NCUA INSURED)

  4. Making Savings Work for You! • Interest: money you receive for letting others use your money. • Savings put to work to earn interest is a form of investment. • Principal: money that you put into savings or investment. Your contribution to the savings plan. Example: Joe put $100 in a savings account. The $100 is the principal.

  5. Earning Interest • Simple Interest: computed only on the amount saved. • Formula = Principal X Rate X Time

  6. Simple Interest Example • Example: David saves $50 a month. In a year his savings will be $600. After 1 year, his savings will be $600. He earns 10% annual interest. • After 1 year, he will have made $60. - - for doing nothing! $50 X 12 Months = $600 $600 X 10% X 1 Year = $60

  7. Earning Interest Which Grows faster the savings rate or the investing rate? • Compound Interest: computed on the amount saved plus the interest previously entered. • Interest can be compounded daily, monthly, quarterly, semiannually, or annually

  8. Selecting an Investment • When deciding how to invest your savings, three main factors should be considered. • Safety • Rate of Return (Yield) • Liquidity

  9. Selecting a Savings Plan • Safety: assurance that the money you have invested will be returned to you. • How safe are the following? • Savings Account at Local Bank • Purchasing a House • Investing in a Stock

  10. Selecting a Savings Plan As the risk of the investment increases, so does the potential rate of return • Rate of Return (Yield): the percentage of interest that will be added to your savings over a period of time. • How much will you “get back” in return for the invested amount of money. • Usually higher rates of return and greater risks of loss go together.

  11. The Rule of 72 • The Rule of 72 gives you the answer to the question of how long it will take to double your money at various rates of return.

  12. Selecting a Savings Plan • Liquidity: the ease with which an investment can be changed into cash without losing any of its value. • When an investment can be turned into money quickly, it is said to be a liquid investment.

  13. Which is more of a liquid investment? Bank Account Land Worth $5,000 Worth $5,000

  14. Savings/Investing Activity • Worksheet • Saving! Every penny counts!

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