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 ID: 740598
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Slide1
P.Y.F.Slide2
HomeworkSlide3
How’s It Going?
Have you increased your savings?
What improvements have you seen in your finances?
Has your credit score improved?
What is the most significant improvement in your finances?
Any new challenges?
Slide4
What Do You Know?
Pre-Test from Participant’s Guide
1. Which of the following is true about the value of saving? Select all that apply
a) Reduces the need for credit in emergencies
b) Helps to achieve your financial goals
c) Helps you manage your expenses better
d)
Improves
your standard of living
2. Annual Percentage Yield (APY) means:
a) The amount of interest you pay on a loan
b) The percentage you will earn on your savings or other deposit account
c) The minimum percent of your income you must save each year to keep your savings account
d) How long you need to keep your money in a savings accountSlide5
What Do You Know?
Pre-Test from Participant’s Guide
3. What is a mutual fund or exchange traded fund (ETF)?
a) A collection of many stocks or bonds
b) An individual stock
c) An individual bond
d) All of the above
4. What are the advantages of traditional retirement accounts
a) The account can never lose value b) The account grows tax free until withdrawal c) The account is insured by the government d) Greater potential growth when compared to a savings account5. What are ways to contribute to your monthly savings and investing. a) Contribute to a workplace account (401(k), 403(b), 457, TSP) b) Contribute to an individual retirement account (IRA) c) Direct deposit into a savings account d) All of the above
AnswersSlide6
What Do You Know?
Pre-Test from Participant’s Guide
Which of the following is true about the value of saving? Select all that apply:
All responses are true. Savings is more than just a nest egg.
a) Reduces the need for credit in emergencies
b) Helps to achieve your financial goals
c) Helps you manage your expenses better
d) Improve your standard of living 2. Annual Percentage Yield (APY) means: b) The percentage you will earn on your savings or other deposit accountAPY is the rate of return you get for your interest bearing accounts that includes the benefit of compounding.
Slide7
What Do You Know?
Pre-Test from Participant’s Guide
3. What is a mutual fund or exchange traded fund (ETF)?
a) A collection of many stocks or bonds
4. What are the advantages of traditional retirement accounts
b) The account grows tax free until withdrawal d) Greater potential growth when compared to a savings account5. What are ways to contribute to your monthly savings and investing. a) Contribute to a workplace account (401(k), 403(b), 457, TSP) b) Contribute to an individual retirement account (IRA) c) Direct deposit into a savings account d) All of the above
Slide8
Let’s Talk About You
Does anyone have a savings technique that works for
you
?
What
type of workplace or individual retirement
plans
are you contributing to?
What techniques do you use to pay yourself first?What types of accounts do you use for savings that you will need in the next few years? Slide9
Pay Yourself First
The Four Types of Savings
Automatic
Savings
Invest
for longer time periodDiversification
Mutual Fund
Exchange
Traded Funds (E.T.F.’s)Retirement accountsTypes of accountsTypes of investmentsWhen to beginHow much do you need Slide10
Managing ExpensesSlide11
The Four Types Savings
Savings for Emergency
3 to 6
months expenses
Reserve for Periodic Expense
Spending Plan Amount
Savings for Goals
My S.M.A.R.T. Goals
Savings for Retirement- InvestingRetirement CalculatorSlide12
Savings: What type of Account?
Savings Account
Pays interest
May require minimum balance
Low opening deposit
Limited number of withdrawals
Money Market Account
Higher interest rates
Higher opening deposit
Higher balance = higher rate
Limited number of withdrawals
Certificate of Deposit / Share Certificate
Money is held for specific length of time (6 months – 5 years)
Longer term = higher rate
Fixed interest rates
May have penalty for early withdrawalSlide13
Annual Percentage Yield (A.P.Y.)
The percentage of interest you will earn on a yearly basis
Includes the effect of compoundingSlide14
Make it Automatic
Prior to Paycheck
Retirement Plan
From Paycheck
Designated savings or money market account
Automatic transfer between accounts
Other sources for your savings account
Tax refund, pay increase
Bonus, spare change Slide15
Emergency savings improves quality of life
Amount in
emergency savings
<$500
>$500
Difficulty paying mortgage or rent
42%
16%
Overdrawn account52%22%
Worried a lot about personal finance53%21%Consumer Federation of America 2008Slide16
Periodic Expenses
Slide17
Saving for Goals
Savings
reduces the
need for credit
Determine cost / time until purchase
As loans are paid
off,
redirect payments to savings
Examples: car, education, house Slide18
Investing: Preparing for Retirement
Social Security alone does not replace your
income
Use Ballpark estimator to determine amount
needed
(
www.choosetosave.org/ballpark)
Employer retirement match = FREE MONEYSlide19
Investing Choices
Mutual Fund
Exchange Traded Fund
(E.T.F.)
Collection of individual
stocks or bonds
Stocks
Ownership
Bonds
LoanSlide20
Highest Risk-
More potential for growth or loss
Lowest Risk-
Less potential for growth or lossSlide21
Saving Compared To Investing
SAVING (Safety)
INVESTING (Growth)
Short
term
–emergencies,
short-term goals
Long term
–
long-term goals, retirementInsured by FDIC/NCUA
Not insured
No risk of loss
to your contribution
Risk for
loss of some of your contribution
Slow
growth
Potential
higher long term growth
.Slide22
Investing Principle: Diversification
Diversification:
Using a variety of investments to reduce your risk of loss
Ways to diversify:
Multiple Stocks & Bonds
Mutual Funds or Exchange Traded Funds (ETF)
Stock Funds
Bond Funds
Target Retirement Funds Target Date or LifecycleSlide23
Retirement Accounts
Workplace
401(k): For-profit businesses (usually)
403(b): Educational institutions, tax-exempt organizations
457: State and local governments
Thrift Savings Plan (TSP): Federal Employees, military
IndividualIndividual Retirement Account (IRA) Slide24
Retirement accounts:Slide25
How Much Will You Need?
Factors to Consider:
Age
Salary/annual budget
Planned retirement age
Number of years in retirement
Inflation rate
Rate of return on investments etc.
www.choosetosave.org/ballparkor Ballpark Estimate at your App StoreBallpark Estimator ToolSlide26
Time is On Your Side
By starting earlier she ended with $116,325 more
even though she invested $30,000 less
Assumption: 8% ReturnSlide27
Time Value of Money
Age contribution begins:
Assumption: 8% ReturnSlide28
Investment Per Month
to
have $500,000 by age 65.
Start at age
Need to Save Monthly
25
$143
30
$218
35
$335
40
$526
45
$849
50
$1,445
55
$2,733
60
$6,805
Assumption: 8% ReturnSlide29
Reminder: Daily Decisions
One CoffeeSlide30
Pay Yourself First
Prioritize future needs over current expenses and past debt
Four areas of savings
Make it automatic
Investing
How investing differs from savings
Types of investing options
How much to put in retirement
Small decisions make a big difference Slide31
What Have You Learned?
Post-Test from Participant’s Guide
1. What is a major difference between saving and investing?
a) Most savings are federally insured; investment products are not
b) Savings products have a risk of loss and investments don’t
c) Investments don’t have as high a potential for growth as savings
d) Savings and investment products are the same
2. What are ways
to make savings automatic? a) Direct deposit a portion of pay into a separate savings account b) Keep cash under your mattress c) Have a portion of your pay go directly to a retirement account d) Both a) and c) are correctSlide32
3. What are benefits of paying yourself first?
a) Improving your standard of living
b) Learning to manage money better
c) Having money for emergencies
d) All of the above
4.What are ways you can best diversify your retirement investments?
a) Invest in individual stocks
b) Invest in individual bonds
c ) Invest in stock funds, bond funds or exchange traded funds d) Invest in companies that you are familiar with5. Which statement(s) are true about retirement accounts? Select all that apply a) The account can never decrease in value b) The money in the account is taxed every year c) The money in the account is not taxed while it grows d) Over time, the investment is likely to grow more than savings
What Have You Learned?
Post-Test from Participant’s Guide
AnswersSlide33
What Have You Learned?
Post-Test from Participant’s Guide
1. What is a major difference between saving and investing?
a) Most savings are federally insured; investment products are not
Investment products are not insured and you can lose a portion of what you contributed.
2. What are ways
to make savings automatic?
a) Direct deposit a portion of pay into a separate savings account c) Have a portion of your pay go directly to a retirement account d) Both a) and c) are correctDirect deposit and participation in employer retirement plan are great ways to automate savings.Slide34
3. What are benefits of paying yourself first?
All answers are correct.
a) Improving your standard of living
b) Learning to manage money better
c) Having money for emergencies
d) All of the above
4.What are ways you can best diversify your retirement investments?
c ) Invest in stock funds, bond funds or exchange traded fundsFunds are diversified automatically because they are a packaged group of investments. 5. Which statement(s) are true about retirement accounts? Select all that apply c) The money in the account is not taxed while it grows d) Over time, the investment is likely to grow more than savingsRetirement accounts either tax the money at the time of contribution or withdrawal, while it grows, money is not taxed. Investments do tend to have higher rates of return over time, but can lose money in any individual year.
What Have You Learned?
Post-Test from Participant’s GuideSlide35
Homework
(Passport)Slide36
Questions?