Savings by ewghwehws

VIEWS: 9 PAGES: 20

									Penn State Altoona SIFE
Importance  of saving
The saving process
Easy saving concepts
Saving tips
   Helps in the accomplishment of future goals
   Unexpected emergencies arise
   Prepares you in case opportunities come
   Aides in the retirement process
   Education is costly, but invaluable
   Allows you to make large purchases (house,
    car, etc.)
   Determine savings goals
    ◦ Ask questions such as:
      How much money can I set aside each pay?
      How long should I save?
    ◦ Goals should be SMART
        Specific – clear, exact, well-defined
        Measurable – an exact amount
        Achievable- given available resources
        Realistic- consider obstacles
        Timely- set specific target date
   Examine bad spending habits
    ◦ Ask questions such as: What is an expense I can
      reduce or eliminate?
    ◦ Example: You buy a small cappuccino for $3.75
      three times a week before you go to work
      $3.75 x 3 = $11.25 per week
      $11.25 x 4 = $45 per month
      $45 x 12 = $540 per year
   Practice good spending habits
    ◦ Ask questions such as: Instead of paying $45 a
      month for cappuccinos, how can I use the money
      efficiently?
   Regularly set aside a portion of your
    paycheck before you spend it
   The first “bill” you pay is yourself
   Easiest to accomplish when your paycheck is
    directly deposited into your account
   By developing this mentality, saving becomes
    a priority
   Open a savings account, if you do not have one
    ◦ Select a percentage or specific amount you would like to
      save
    ◦ Have your bank automatically direct deposit into your
      savings account every pay period
   Start with a small amount, then increase it over
    time
   Treat this process as a bill that must be paid
    ◦ Do not stop contributions or make withdrawals
    ◦ Once you miss a couple payments or withdraw money,
      the whole process could fall apart
   Spend less money than you make
   Proven way to avoid debt and stress
   How to live below your means…
    ◦   Buy store brands
    ◦   Pack lunch instead of buying
    ◦   Use coupons
    ◦   Buy used instead of brand new
    ◦   Avoid credit cards
    ◦   Maker wiser decisions
   Living below your means cuts costs and in
    return, saves you money!
   Practice the 30 day rule
    ◦ Simple method to curb impulse spending
    ◦ Instead of buying the item, write down name of the
      product, its price, the store you found it at, and the
      date
    ◦ Post it on the calendar (or someplace obvious)
    ◦ For the next 30 days, think whether you really want
      the item or not, but do not buy it
    ◦ If the urge is still there at the end of 30 days,
      consider buying it
   Use the power of compound interest
   Pays interest on your principal; when it is
    time to pay again, you’re paid interest on
    your principal and the previous interest that
    you earned
   Simply, the interest you were paid adds to
    and becomes part of the principal
   You have a continuously growing principal
    amount without having to make another
    deposit
   Savings increases substantially when you
    make periodic deposits in addition to the
    compounding interest
   Savings vehicles that offer compounded
    interest
    ◦ IRAs (Traditional or Roth)
    ◦ Money Market Accounts
    ◦ Certificates of Deposit
   Check with your bank to see what they offer
Sally invests $100. The interest rate is 8%
 compounded annually. She plans to deposit
 an additional $100 into her account annually.

After 5 years, she will have $780.53
After 10 years, she will have $1780.44
After 15 years, she will have $3,249.65
   Investor A opens an                 Investor B opens an
    IRA at 11 percent                    IRA at 11 percent
    and deposits                         and deposits
    $2,000 per year for                  $2,000. The first
    the next seven                       deposit is made at
    years. The last                      age 28 and he
    deposit is made at                   continues to make
    age 28.                              deposits for the
                                         next 35 years.
      Note: Interest is compounded annually for both investors
      Investor A                    Investor B
Age    Deposit      Acc.      Age      Deposit    Acc.
                   Amount                        Amount
22     $2,000      $2,200     22         0          0

28     $2,000      $21,719    28       $2,000     $2,220

35        0        $45, 092   35       $2,000    $26,328

45        0      $128,035     45       $2,000    $111,879

55        0      $363,545     55       $2,000    $354,794

62        0      $754,777     62       $2,000    $758,329
Results:
Both Investors have almost the same amount of
 money (difference of $3,552). Investor A only
 contributed $14,000 while Investor B
 contributed $70,000.
 Investor A                     Investor B

 Total Contributions: $14,000   Total Contributions: $70,000
 Total Value: $754,777          Total Value: $758, 329

								
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