THE MAIN IDEA
Savings are money people put aside for future use. Generally people use their savings for major purchases, emergencies, and retirement income. Savings accounts can earn either simple or compound interest. If one leaves money saved in an account that accumulates compound interest, interest is earned on both the amount saved and the interest earned.
A Guide to Saving
Savings plans include
Regular savings accounts
Certificates of deposit
Money market accounts
The amount you save depends on the amount you are willing NOT to spend
Experts say people
should save about
10% of their take-
home income.
Pay Yourself First
Experts suggest that the
amount being saved should be
taken from the income first so
you are not tempted to spend it
Saving money should be a part
of your budget
A Guide to Saving
Opportunity cost - putting off
spending money on an item
that you might want right
now
Benefit - greater than
purchasing an item that you
wantSavings Calculator
Why you should maintain a savings account To make major purchases later
A new home A new car College
The provide for emergencies Experts suggest you set aside
6 months of income
To have income for retirement
Retirement
Most people receive Social
Security income
Most people have some sort
of retirement plan from
work
Theses are usually not enough
to support you once you retire.
You will need savings too.
Earning Interest on Savings
Not all savings earn income
When you put your money into a bank’s savings account you are lending them money (you are the creditor)
They use your money to loan to others
This makes saving good for the economy
Rate of Return
The percentage of increase in the
value of your savings
Earnings on savings can be
measured by the rate of return,
or yield.
Compounding
Simple interest is interest earned on money
deposited into a savings account, called the
principal.
When principal and interest are left in an
account, it earns compound interest.
Compound Interest
Compound Interest
You have $50,000 in a savings account at 6 percent annual interest.
Simple Interest
Compound Interest
You’ve earned $3,000 after one year.
$3,000 is added to the principle.
Fifteen Years Later
$20,00 of interest is earned.
You have $50,000 in a
savings account at 6
percent annual interest.
Simple Interest
Compound Interest
You’ve earned $3,000 after one year.
$3,000 is added to the principle.
Fifteen Years Later$20,00 of interest is earned.
The Rule of 72
The Rule of 72 is used to calculate how long it will take to double the money in an investment. It is calculated by dividing 72 by the annual interest rate to get the number of years.
The truth about millionaires
Millionaire Quiz
When will you be a millionaire?