P.Y.F.

Welcome!

• Explain why it is important to save

• Determine goals for saving money

• Identify savings options

• Determine which savings options will help you reach your savings goals

• Recognize which investment options are right for you

Homework(Passport page 40)

How’s It Going?

What Do You Know?

(Pre-Test page 4)

Pay Yourself First• What does it mean to “pay yourself first”?

– Put money in savings before paying your bills

• Why would you want to save money before paying your bills?

• What are some of the things you might want to save money for?

Emergency SavingsFinancial Benefits

Impact <$500

ES >$500

ES

     

Bill payment    

Concern paying monthly bills 70% 36%

Difficulty paying mtge or rent 42 16

     

Checking management    

Not met mo. minimums past year 18% 13%

Overdrawn account past year 52 22

     

Credit card management    

Carry a balance 74% 62%

Pay mo. minimum or somewhat more 51 35

Paid fee in past year 35 26

     

High-cost loans    

Payday 8% 3%

Car title 7 3

Pawnshop 8 0

Psychological Benefits

Impact <$500

ES >$500

ES

     

Worried about personal finances in past year

 85%

 69%

Worried a lot 53 21

For worriers:    

Lose sleep 64 42

Worse health 54 29

Less productive at work 42 23

Saving for Purchases

• Substitute savings for credit

• Determine purchase cost / time until purchase

• Make payments to your savings when vehicle loans are paid off

Retirement Savings

• www.choosetosave.org

• IRA savers credit

• Employer matched retirement = FREE MONEY

• Don’t rely on Social Security alone 

Daily Decisions

One Coffee a Day =

$5

$25 week

One month’s rent

354 gallons of gas

$100 month

More than 3 car payments

$1,200 year

More than 2 months

of groceries &dining out

2 months of child care

How Your Money Grows

• Principal ~ what you save or invest

• Interest– Simple

principal x interest rate % x time

– Compound (principal + interest ) x interest rate %

Which Would You Want?

Year Principal

Interest

Ending Balance

1 $100 $7 $107

2 $100 $7 $114

3 $100 $7 $121

4 $100 $7 $128

5 $100 $7 $135

Total Interest

$35

Year Principal

Interest Ending Balance

1 $100 $7 $107

2 $107 $7.49 $114.49

3 $114.49 $8.01 $122.50

4 $122.50 $8.58 $131.08

5 $131.08 $9.18 $140.26

Total Interest

$40.26

Simple Interest Compound Interest

Which Do You Want?

One penny doubled each day for a month

OR

$500

The Penny! 100% InterestDay 1 $0.01 Day 11 $10.24 Day 21 $10,485.76

Day 2 $0.02 Day 12 $20.48 Day 22 $20,971.52

Day 3 $0.04 Day 13 $40.96 Day 23 $41,943.04

Day 4 $0.08 Day 14 $81.92 Day 24 $83,886.08

Day 5 $0.16 Day 15 $163.84 Day 25 $167,772.16

Day 6 $0.32 Day 16 $327.68 Day 26 $335,544.32

Day 7 $0.64 Day 17 $655.36 Day 27 $671,088.64

Day 8 $1.28 Day 18 $1,310.72 Day 28 $1,342,177.28

Day 9 $2.56 Day 19 $2,621.44 Day 29 $2,684,354.56

Day 10 $5.12 Day 20 $5,242.88 Day 30 $5,368,709.12

Compounding interest is the 8th wonder of

the world!

A.P.Y.

Annual Percentage Yield• The amount of interest you will earn on a

yearly basis expressed as a percentage

• Includes the effect of compounding

• Should be used to compare saving products, not the interest rate

Rule of 72The time it will take for your $$$ to double.

$50 4% interest

72 ÷ 4% = 18 years

$500 Double in twelve years

72 ÷ 12 = 6%

Time is On Your Side

$3,000 a year

8 years

$24,000 total

$3,000 a year

34 years

$102,000 total

$964,129

vs.

$810,073

He added $78,000 more and ended up with $150,000

less!

Savings Per MonthCurrent Age Need to Save Monthly

25 $158

30 $263

35 $442

40 $754

45 $1,317

50 $2,412

55 $4,881

60 $12,931

Savings vs. Investing

TimeFrame

Risk Objective Type Liquidity

Return

Saving Short Very little

Emergencies

Large purchases

Savings Account

Money Market

Very Liquid

Low

Usually safe

Investing

Medium to long

Low to high

Retirement

Financial Freedom

Mutual Funds

Stocks

Real Estate

Depends Low to high

Not a guarantee

Savings

Savings AccountPays interest

May require minimum balanceLow opening deposit

Money MarketHigher interest rates

Higher opening depositHigher balance = higher rateCan access money if needed

Certificate of Deposit / Share CertificateFixed rates

Hold money for specific length of time (6 mos – 5 years)Can’t access money without penalty

Longer term = higher rate

Investing

Mutual Funds Stocks

IRA / 401(k) Bonds

Before You Invest

• Save money (6-month savings cushion)

• Talk to:

• Your bank or credit union

• A reputable financial advisor

• An investment firm

• Do your own research

What Have You Learned?

(Post-Test page 16)

Homework(Passport page 42)

Questions?