Choosing to save_power_point_presentation_1.14.1.g1

1,584 views

Published on

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,584
On SlideShare
0
From Embeds
0
Number of Embeds
183
Actions
Shares
0
Downloads
34
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • Changed the font the old one (rage italic) was too hard to read
  • Choosing to save_power_point_presentation_1.14.1.g1

    1. 1. Choosing to Save “ Take Charge of Your Finances” Advanced Level
    2. 2. My Wish List MY WISH LIST Brainstorm a personal wish list for yourself. Include anything of monetary value
    3. 3. “ TODAY’S SELF HAS AN IMPACT ON FUTURE SELF” What does this statement mean to you?
    4. 4. What is the difference between saving and investing? Portion of current income not spent on consumption Saving Purchase of assets with the goal of increasing future income Investing <ul><li>Emergencies </li></ul><ul><li>Large Purchases </li></ul>Used to pay for: <ul><li>Higher Education </li></ul><ul><li>Retirement </li></ul>Used to pay for:
    5. 5. What is an Asset? Make a list of your assets Examples of Assets Cash Automobiles Houses Furniture Assets - everything an individual owns with monetary value Clothing Electronics Savings Accounts
    6. 6. What is Liquidity? Liquidity- how quickly and easily an asset can be converted to cash Less Liquid More Liquid Investments Savings Tools
    7. 7. Liquid Assets <ul><li>Savings </li></ul><ul><li>Tools </li></ul>Would any of your assets provide cash to fund an emergency? Accessible in emergencies Liquid Assets
    8. 8. Why are saving and investing important? Saving Investing Provides the foundation for financial security Enhances and helps build wealth Serve different purposes but both are essential
    9. 9. What is wealth and how is it measured? <ul><li>Wealth - measurement of how much a person owns once all debts have been paid </li></ul>Net worth statement - describes a person’s overall financial condition on a specified date
    10. 10. Who is Wealthier? <ul><li>Juanita - earns $35,000 per year </li></ul><ul><li>Alexis – earns $100,000 per year </li></ul>Juanita’s Net Worth Statement Assets Home $60,000 Retirement $24,000 Automobile $8,000 Total Assets $92,000 Liabilities College loan $6,000 Mortgage $35,000 Total Liabilities $41,000 Net Worth $51,000 Alexis’ Net Worth Statement Assets Home $75,000 Retirement $35,000 Automobile $8,000 Total Assets $118,000 Liabilities College loan $10,000 Automobile loan $4,000 Credit card debt $20,000 Mortgage $65,000 Total Liabilities $99,000 Net Worth $19,000
    11. 11. The Choices You Make Today Impact Your Future! INCREASED WEALTH! SAVING AND INVESTING… INCREASE ASSETS DECREASE LIABILITIES Why is it important to increase wealth?
    12. 12. Why are saving and investing important? Money needed to pay for the necessities and comforts currently enjoyed Higher level of living that person wishes to reach Level of Living Standard of Living PRESENT FUTURE Help pay for a level of living and reach a desired standard of living
    13. 13. How much money should be saved and invested? At least six months worth of expenses in liquid assets Household with $2,000 per month of expenses = at least $12,000 in savings ($2,000 x 6 months) Save 10-20% of net income every month until appropriate amount of savings is reached SAVINGS Recommended Amount Example How
    14. 14. How much money should be saved and invested? INVESTING Make sure an appropriate amount of savings is accessible Redirect goals from saving to investing Continue to invest 10-20% of net income every month
    15. 15. Saving vs. Investing Activity- Does the characteristic describe saving or investing? <ul><li>Characteristic: </li></ul><ul><li>BUILDS WEALTH </li></ul><ul><li>Saving or Investing: </li></ul><ul><li>INVESTING </li></ul>
    16. 16. Saving vs. Investing Activity <ul><li>Characteristic: </li></ul><ul><li>USED TO PAY FOR EMERGENCIES </li></ul><ul><li>Saving or Investing: </li></ul><ul><li>SAVING </li></ul>
    17. 17. Saving vs. Investing Activity <ul><li>Characteristic: </li></ul><ul><li>PROVIDES THE FOUNDATION FOR FINANCIAL SECURITY </li></ul><ul><li>Saving or Investing: </li></ul><ul><li>SAVING </li></ul>
    18. 18. Saving vs. Investing Activity <ul><li>Characteristic: </li></ul><ul><li>LESS LIQUID </li></ul><ul><li>Saving or Investing: </li></ul><ul><li>INVESTING </li></ul>
    19. 19. True or False? Identify if each statement is true or false… They are both true. The time value of money makes this possible! □ If Janie makes a one time investment of $500 at age 20 in a tool that earns the historic 12% average, by age 60 the $500 will become $46,525. □ If Samuel invests $3,000 annually from ages 22-31 (a total of $30,000 invested) in a tool earning 10% interest, he will have $1.2 million dollars by age 65.
    20. 20. What is the Time Value of Money? Money paid out or received in the future is not equivalent to money paid out or received today Factors that make the time value of money possible:
    21. 21. What is Interest? Interest - the price of money Interest rate - percentage rate paid on money saved Compounding interest – earning interest on interest
    22. 22. How Do Interest Rates Affect Time Value of Money? Interest Rate Larger Return Return- profit generated by saving and investing $1,000 invested for 5 years Interest Rate (compounding) Amount Investment is Worth 1% $1,051.01 3% $1,159.27 5% $1,276.28 7% $1,402.55 9% $1,538.62
    23. 23. Time Larger Return How Does Time Affect the Time Value of Money?
    24. 24. A Little Goes a Long Way <ul><li>Ed waits until he is 28 and contributes $3,000 at 10% for 37 years </li></ul><ul><li>Sally puts away $3,000 per year for 10 years, at age 22. She earns 10% on her investment </li></ul>Sally invests a total of $30,000 and has earned $1,205,063 by the age of 65 Ed invests a total of $111,000 and accumulates $1,079,856 by the age of 65
    25. 25. How Does Money Affect the Time Value of Money? Money Larger Return Principal - original amount of money saved or invested
    26. 26. Amount of Money 7% interest compounded annually for 5 years Amount of Principal Investment Return $100.00 $40.26 $1,000.00 $402.55 $10,000.00 $4,025.52
    27. 27. Time Value of Money Magic! 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 Initial Investment (Principal): $100.00 at 7% compounding interest Year 1 Interest Earned: $7.00 Amount Investment is Worth: 107.00
    28. 28. Maximize Your Return! Invest for as long as possible! Invest as much as possible, as often as possible! Invest at the highest interest rate possible!
    29. 29. How do I begin to save money? Follow this process… Let’s learn the details of this process… Make saving automatic Consider what savings goals you want to reach <ul><li>Evaluate the consequences of that goal: </li></ul><ul><li>What trade-offs will you have to make? </li></ul><ul><li>What is the opportunity cost of those trade-offs? </li></ul><ul><li>How will the trade-offs made affect your spending plan ? </li></ul>Write a SMART goal
    30. 30. What savings goals do you want to reach? Goal - the end result of something a person intends to accomplish Refer to your wish list. These items represent savings goals! Goal setting helps you think about your future self Consider what savings goals you want to reach
    31. 31. Consequences of Goals Do you currently have enough money to acquire all of the items on your wish list? If not, what are you willing to give up in order to acquire one of these items? That is known as a trade-off ! Consider what savings goals you want to reach Evaluate the consequences of that goal
    32. 32. Consequences of Goals- What is a Trade-off? Trade-off - Giving up one thing for another Every decision inevitably involves a trade-off What is the value of this trade-off to you? That is known as opportunity cost !
    33. 33. Consequences of Goals- What is Opportunity Cost? <ul><li>Opportunity cost - value of the next best alternative that must be forgone when a trade-off is made </li></ul><ul><li>Allows you to analyze the consequences of choices to decide which trade-offs to make </li></ul>
    34. 34. Consequences of Goals- Spending Plans <ul><li>Spending plan - document used to record both planned and actual income and expenses over a period of time </li></ul>Income OR Expenses To reach your savings goal you identified trade-offs that would be made. How will these trade-offs affect your spending plan? Adjust your spending plan accordingly
    35. 35. Set SMART Goals Write a SMART goal for one of the items on your wish list. MY WISH LIST Consider what savings goals you want to reach Evaluate the consequences of that goal Write a SMART goal
    36. 36. Make Saving and Investing Automatic <ul><li>Make your goal happen automatically </li></ul><ul><li>Pay yourself first - saving strategy that means to set aside a predetermined portion of money for saving before any money is used for spending </li></ul>Save then spend! Make saving automatic Consider what savings goals you want to reach Evaluate the consequences of that goal Write a SMART goal
    37. 37. How can saving and investing become automatic? <ul><li>Automatic Transfers </li></ul><ul><li>Most depository institutions allow automatic transfers between accounts </li></ul><ul><li>Designated amount of money will be automatically moved into a saving or investing tool every month </li></ul>
    38. 38. How can saving and investing become automatic? <ul><li>Payroll Deduction </li></ul><ul><li>Offered by most employers </li></ul><ul><li>Employees designate money from their paycheck be deposited into an account of their choice </li></ul>
    39. 39. Saving Financial security and a positive level of living Investing Wealth accumulation and a desired standard of living Summary- What is the purpose of saving and investing money and why is it important? Think about your future self!
    40. 40. <ul><li>Save 10-20% of net income in liquid assets until it equals at least 6 months of expenses </li></ul><ul><li>Continue to invest 10-20% of income </li></ul><ul><li>to increase wealth </li></ul><ul><li>Utilize the time value of money </li></ul><ul><li>to your greatest advantage </li></ul>To practice smart saving and investing habits …
    41. 41. Choose to Save! Follow this process… Make saving automatic Consider what savings goals you want to reach <ul><li>Evaluate the consequences of that goal: </li></ul><ul><li>What trade-offs will you have to make? </li></ul><ul><li>What is the opportunity cost of those trade-offs? </li></ul><ul><li>How will the trade-offs made affect your spending plan ? </li></ul>Write a SMART goal

    ×