manage your money karsten jeske, ph.d. federal reserve bank of atlanta
Post on 20-Dec-2015
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TRANSCRIPT
Manage Your MoneyManage Your Money
Karsten Jeske, Ph.D.Karsten Jeske, Ph.D.
Federal Reserve Bank of AtlantaFederal Reserve Bank of Atlanta
Purpose of This Purpose of This SessionSessionTo show:To show:
Why it’s important to saveWhy it’s important to save
How you can save moneyHow you can save money
Examples of investmentsExamples of investments
Use credit wiselyUse credit wisely
Why Save?Why Save?
How to Save MoneyHow to Save Money
From each From each paycheck.paycheck.
From gifts. From gifts.
Building up Building up loose change.loose change.
Tips to Saving MoneyTips to Saving Money
• Be realistic
• Be systematic
ExampleExample
Alice starts saving at age 25: Alice starts saving at age 25: 10% of her income10% of her income
Bea starts saving at age 30: Bea starts saving at age 30: 13.3% of her income13.3% of her income
Chris starts saving at age 35: Chris starts saving at age 35: 17.9% of his income17.9% of his income
Dan starts saving at age 40: Dan starts saving at age 40: 24.6% of his income24.6% of his income
Ellis starts saving at age 45: Ellis starts saving at age 45: 35.1% of his income35.1% of his income
At age 65: They all have the same wealth: At age 65: They all have the same wealth: Worth ~12 times their final income!Worth ~12 times their final income!
Remember…Remember…
Even lower-income people can become wealthy through good savings habits.
A lot of people who might look wealthy have no cash and are always in debt.
We are so broke!
Key Point About Saving Key Point About Saving MoneyMoney
TheThe AMOUNT AMOUNT saved saved
isn’t as important as getting intoisn’t as important as getting into
thethe HABIT!HABIT!
Examples of Examples of InvestmentsInvestments
– Savings AccountsSavings Accounts– Interest CheckingInterest Checking– Money MarketMoney Market– Certificate of DepositCertificate of Deposit– StocksStocks– BondsBonds– Mutual FundsMutual Funds– Real Estate (& R/E Real Estate (& R/E
Funds)Funds)
Risk and ReturnRisk and Return
StocksStocks BondsBonds Certificate of DepositCertificate of Deposit Money Market FundMoney Market Fund Savings AccountSavings Account
Higher ReturnHigher Risk
Lower ReturnLower Risk
Compound InterestCompound Interest
Year 1Year 1
$100 x 10% = $10$100 x 10% = $10
$100 + $10 = $100 + $10 = $110$110
Year 2Year 2
$110 x 10% = $11$110 x 10% = $11
$110 + $11 = $110 + $11 = $121$121
Comparison ShopComparison Shop
Consider things like the following:
• Minimum balance requirements
• Interest rate
• How interest is calculated
• Fees, charges, penalties, etc.
• Convenience
• Risk
Don’t Be a Victim of Don’t Be a Victim of Fraud!Fraud! Know who you’re Know who you’re
investing withinvesting with– Do your Do your
researchresearch Be wary of get rich Be wary of get rich
quick schemesquick schemes Protect yourselfProtect yourself
– www.ftc.govwww.ftc.gov– www.fraud.orgwww.fraud.org– www.nasaa.orgwww.nasaa.org
Use of CreditUse of Credit
Advantages:Advantages:– Able to buy needed items nowAble to buy needed items now– Don’t have to carry cashDon’t have to carry cash– Creates record of purchasesCreates record of purchases– More convenient than writing checkMore convenient than writing check
Disadvantages:Disadvantages:– InterestInterest– May require additional feesMay require additional fees– Increased impulse buying may occurIncreased impulse buying may occur– May loose track of how much one spends May loose track of how much one spends
in a monthin a month
Use of CreditUse of Credit
Distinguish “wants” vs. “needs”Distinguish “wants” vs. “needs”
Books for school?Books for school? ““need”need”
Caribbean Cruise?Caribbean Cruise? ““want”want”
A new car?A new car? dependsdepends
Jewelry?Jewelry? ““want”want”
Roof repair?Roof repair? ““need”need”
Use of CreditUse of Credit
Never buy “wants” on creditNever buy “wants” on credit Buy “needs” on credit if necessary.Buy “needs” on credit if necessary. But follow the 20-10 rule:But follow the 20-10 rule:
– Don’t carry more than 20% of annual Don’t carry more than 20% of annual income in debt (outside of home income in debt (outside of home mortgage).mortgage).
– Don’t carry debt that makes you pay Don’t carry debt that makes you pay more than 10% of monthly income in more than 10% of monthly income in debt service (outside of home debt service (outside of home mortgage).mortgage).
SummarySummary
Get in the habit of saving: The Get in the habit of saving: The earlier you start the easier it isearlier you start the easier it is
If you use credit , do so only for If you use credit , do so only for “needs”“needs”
Keep a lid on debt: 20-10 rule!Keep a lid on debt: 20-10 rule!