Chp. 10 Notes

							Chp. 10 Notes –
Savings
Why you should save

  To provide for future needs
    Both expected and unexpected
  Short Term Goals
    Emergencies – unemployment, sickness,
     accident, or death in family
    Vacations –
    Social Events – weddings, family gatherings
Why you should save

  Long term goals
    Home ownership – down payment, the more
     you put down, the smaller the payments
    Education – smaller loans for current
     students, pay for your kids college
     education.
    Retirement – social security payments will
     not provide sufficient support
    Investment – to stay ahead of inflation and
     to make more money
Selecting a Savings Plan

  Liquidity – how quickly you turn savings
   into cash when you want it.
  Safety – it won’t get stolen
  Convenience – what ever bank is closest
  Interest Earning Potential – money
   should be placed in an institution that
   offers the best rate of return.
Savings Accounts
  Regular Savings Accounts
     UBANK, Washington Mutual, Key Bank
     Highly liquid
  Certificates of Deposit
     A sum of money deposited for a set length of time,
     less liquid than regular, requires a minimum deposit
     Usually has a higher rate of return
  Mutual fund
     A combination savings-investment plan in which money
      deposited is used to purchase certain types of securities.
     Less liquid than regular, requires a minimum deposit
     Usually has a higher rate of return
Compounding Interest –
10%
    Year   Total           Add 10%
    1      $100            $10
    2      $110            $11
    3      $121            $12
    4      $133            $13
    5      $146            $15
    10     $236            $24
    50     $10,672         $1,067
    100    $1.25 Million   $125,278
    300    $238 Trillion   $23.8 Trillion
Compounding vs. Shoebox
Savings Growth
  Year    Compounded       Year    Shoebox
           Investment                Investment
    1     $100               1     $100
    2     $110               2     $200
    3     $121               3     $300
    4     $133               4     $400
    5     $146               5     $500
    10    $236               10    $1,000
    50    $10,672            50    $5,000
    100   $1.25 Million      100   $10,000
    300   $238 Trillion      300   $30,000
Investing Money Regularly

  Start w/ $100 and invest $100 yearly
  Year           Total
     10                   $1,700
     20                   $6,500
     30                   $20,129
     40                   $58,827
     50                   $168,706
The Importance of Time
    Begins Investing at age:     15           35
    Stops adding money at age:   30           65
    Invests each year:           $1,000       $5,000
    Invests a total of:          $15,000      $150,000
    Total Grows each year by:    11%          11%
    Total worth at age 65:       $1,473,172   $1,104,566